By Paul Hannon
Fresh economic figures from Europe and China added to mounting
concerns that weakening growth at the end of 2018 will carry over
into a sharper slowdown next year, as the yearslong global
expansion matures, trade tensions bite and consumers rein in
spending.
China reported weak industrial production and retail data on
Friday, while a key business index in Europe sank to its lowest
level in more than four years due to violent protests in France and
weak manufacturing activity in Germany. Global stock markets and
the euro fell on investor concern, in line with recent steep swings
in markets, even as the U.S. economy has been relatively
steady.
In China, numbers showed that the country's economic downturn
deepened last month, hitting industry and consumers and raising the
challenge for Beijing to arrest the slowdown while fending off a
trade conflict with the U.S.
Industrial production, weighed down by woes in the car and
property markets, slowed in November to its slackest point since
early 2016, official data showed. Growth in retail sales dropped to
its lowest level in more than 15 years.
In Europe, surveys of purchasing managers suggest any
end-of-year rebound will likely be modest, leaving uncertain
prospects for 2019. The composite purchasing managers index for the
eurozone as a whole fell to 51.3 from 52.7 in November. Monthlong
antigovernment protests in France led to the first decline in
business activity there in 2 1/2 years.
Problems in France come as Italy hovers on the brink of
recession, and Germany struggles to rebound from a third-quarter
contraction. It also suggests the European Central Bank may be too
optimistic about the eurozone's economic outlook, despite cuts it
made to growth forecasts Thursday.
"Even if France's PMI bounces back as the effects of the
protests fade, the eurozone economy has clearly shifted down a
gear," said Jack Allen, an economist at Capital Economics.
The U.S. economy remained on a solid footing, though it is
cooling a bit in some respects and appears vulnerable to a global
slowdown. The holiday shopping season started strong, but
manufacturing activity flattened in November, according to new
data. The job market remains tight, but business investment has
slowed.
In China, economists had expected things to be slightly better
last month due to government efforts to support growth by cutting
taxes and jump-starting infrastructure projects. Investment did
grow a tick higher.
"A downward cycle hasn't finished yet, and we'll probably see
more weakness in the first half of the year," said Shuang Ding, an
economist at Standard Chartered. He said sluggish demand likely
caused factories to curb production.
Value-added industrial output in China rose 5.4% in November
from a year earlier, slowing from a 5.9% on-year increase in
October, defying expectations of a boost from the government's
decision to scale back production restrictions intended to ease
pollution.
Weakness was seen across the industrial sector. Automobile
production shrank 3.2% last month from a year earlier. Retail sales
rose 8.1% in November from a year earlier, slowing from an 8.6%
year-over-year gain in October.
Statistics bureau spokesman Mao Shengyong said downward pressure
on growth remains strong, especially given the weaker demand for
Chinese exports and the trade frictions with the U.S.
Despite the 90-day tariff truce that President Trump and Mr. Xi
reached in early December, market confidence remains fragile, and
many economists expect the trade conflict to continue.
China said Friday it would scrap punitive tariffs on U.S.-made
vehicles and auto parts, though only as a temporary measure while
trade negotiations take place.
The slowdown could press policy makers around the world to
respond. Central bank Governor Yi Gang said Thursday that China
needs "relatively loose" monetary conditions to counter an economic
downturn, though he said that could affect the yuan's value,
according to a transcript posted on Chinese news portal
Sina.com.
The overall picture leaves the U.S. Federal Reserve on track to
raise short-term interest rates at its meeting next week, while
leaving uncertain how much more and how fast it will lift borrowing
costs in the coming year.
Maurice Obstfeld, the retiring chief economist of the
International Monetary Fund, said earlier this month the U.S. will
likely feel a drag from the global downdraft.
"The slowdown outside the U.S., to the extent we're seeing signs
of that, seems to be more dramatic," than earlier forecast, Mr.
Obstfeld said in an interview with reporters. "For the rest of the
world there seems to be some air coming out of the balloon and
that, I think, will come back and also affect the U.S.," he
said.
In Europe, the euro fell 0.6% against the U.S. dollar after the
release of the PMIs and on fresh doubts that the ECB will meet
investor expectations with a first raise in interest rates late
next year.
While the contraction in French business may prove temporary,
the greater worry is Germany, where the PMI fell to its lowest
level in four years.
Economists had expected a rebound in German growth during the
final three months of the year as the automobile industry recovered
from a third-quarter slump caused by delays in testing model types
for compliance with new emissions standards. The eurozone economy
experienced its weakest quarter of growth since early 2013 during
the third quarter.
On Thursday, the ECB made its third straight cut in quarterly
forecasts and Friday's figures suggest it may not be their
last.
"Everything, all this when we look at all these drivers of the
recovery, yes, it's true, it's just weaker," said ECB President
Mario Draghi. "It's not just one-off; it's been weaker for a while
now."
--Liyan Qi, Grace Zhu and
Lin Zhu
contributed to this article.
(END) Dow Jones Newswires
December 14, 2018 11:23 ET (16:23 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.