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UK/German economies in doldrums while China rebounds

UK/German economies in doldrums while China rebounds

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While the US/China trade dispute dominates international economic headlines, there was encouraging news from the world’s second largest economy earlier this week as China revealed manufacturing activity rose at its fastest pace in three years in November, despite the impact of the trade war with the US. The Caixin-Markit purchasing managers’ index read 51.8 in November, up from 51.7 in the previous month. The news boosted equity markets, particularly in Asia.

However, in Europe’s manufacturing powerhouse, Germany, industrial orders fell by 0.4% in October compared to an expected increase of 0.3%, according to figures from the Federal Statistics Office. A survey by the IFO Institute, a think tank, showed that companies’ order books fell again in November. The IFO said: “German industry remains in recession. Order books shrank in November, with the relevant index falling from -4.0 to -9.3 points.” The drop was blamed mostly on falling domestic demand, which dropped 3.2% compared to the previous month, while orders from abroad rose by 1.5%.

Demand was reportedly strongest from other eurozone countries, which chimes with data released on Thursday by Euro-stat, that showed economic growth in the eurozone nudging ahead in the third quarter, with GDP up by 0.2% across the 19-country single currency bloc, and by 0.3% in the broader 28-country trading area. Household consumption rose by 0.5%. However, a thoroughly downbeat picture emerged in the UK this week as three surveys pointed to a contracting domestic economy. The Markit/CIPS purchasing managers’ index for the UK manufacturing sector hit a reading of 48.9 in November, down from 49.6 in October. Any reading below 50 indicates that activity is shrinking, and the manufacturing sector has remained below the 50 mark for seven consecutive months. Rob Dobson, director at IHS Markit, said: “The pace of job losses also hit a seven-year high, as firms sought to reduce overheads in the face of falling sales."

The IHS Markit survey covering the UK construction sector produced a reading of just 45.3 in November, up from 44.2 in October but well below the crucial 50 level. Finally, the services sector, which accounts for around 80% of UK GDP, rec-orded a reading of 49.3 in November, down from 50 in October. It is the steepest decline in business activity since March. Survey respondents pointed to political uncertainty leading to cautious business and consumer spending. New business for services decreased for the third consecutive month and the rate of contraction accelerated to its sharpest for over three years. Companies reported that a lack of clarity in relation to Brexit had led to delays to business invest-ment decisions.

Retail sales, however, improved in November, according to the British Retail Consortium (BRC). When adjusted for the late timing of Black Friday this year, total sales increased 0.9% and like-for-like sales, which strips out figures from new shops or acquisitions, rose by 0.4%. "Once the figures are adjusted… growth appears stronger in November than in pre-vious months," said BRC chief executive Helen Dickinson, but she warned: "If the next government wishes to see retail spending remain healthy in 2020 it is essential they clarify our future relationship with the EU as soon as possible."

 

 


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