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Factory activity lower in June across Europe, Asia

The fallout from the US-China trade spat puts the heat on policymakers to take measures to avert a global recession

London

FACTORY activity shrank across much of Europe and Asia in June as the simmering US-China trade spat put further strains on the manufacturing sector, keeping policymakers under pressure to deploy stronger steps to avert a global recession. US manufacturing activity also fell to more than a 21/2-year low to 51.7 last month, the lowest reading since October 2016, from 52.1 in May.

A series of mainly downbeat business surveys and official indicators released on Monday followed Saturday's warning by Group of 20 (G20) leaders, who met in Osaka, of slowing global growth and intensifying geopolitical and trade tensions.

The data was collected before the weekend summit.

The US and China agreed at the summit to restart trade talks after US President Donald Trump offered concessions including no new tariffs and an easing of restrictions on tech company Huawei, providing some relief to businesses and financial markets.

But analysts doubt the truce will lead to a sustained easing of tensions; lingering uncertainty could dampen corporate spending appetite and global growth.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo, said: "It's too early to turn optimistic. The two countries just kicked the can down the road and there's no knowing what could happen next. Global manufacturing activity hasn't hit bottom yet. US business confidence, particularly that of manufacturers, has been weakening and if this continues, it may hurt economies across the world."

Factory activity in the euro zone shrank faster last month than previously thought, in a broad-based downturn, going by IHS Markit's Manufacturing Purchasing Managers' Index (PMI), which also suggested there would be no quick turnaround.

Germany's export-dependent manufacturing sector contracted in June for the sixth time in a row; Italian activity declined for a ninth month and Spain's economy shrank at its fastest rate in more than six years.

France, the euro zone's second-biggest economy, bucked the trend and activity grew at its fastest pace in nine months.

But against a backdrop of Brexit uncertainty and global trade tensions, British manufacturers suffered the sharpest fall in activity in more than six years, its PMI showed, adding to signs of economic weakness there.

Thomas Pugh at Capital Economics said: "The global manufacturing sector has continued to deteriorate, which will weigh on export orders."

In China, Asia's economic engine, the Caixin/IHS Markit PMI, came in at 49.4, falling short of market expectations. It was the worst reading since January, and the first time in four months that the keenly-watched monthly index has fallen below the neutral 50-mark dividing expansion from contraction.

Japan's manufacturing activity also contracted in June, hitting a three-month low and offering fresh evidence of an economy under the pump as global demand weakens.

Separately, a Bank of Japan (BOJ) survey indicated that big manufacturers' confidence has hit a near three-year low, keeping its central bank under pressure to maintain or ramp up a massive stimulus programme.

In South Korea, factory activity shrank at the fastest pace in four months in June as the global trade slowdown deepened, prompting companies to cut production.

Activity fell in Malaysia and Taiwan, a sign the US-China trade conflict's impact on the rest of Asia was broadening. In India and Indonesia, where factories are less reliant on external demand for business, activity continued growing, but more slowly.

Vietnam's factory activity expanded at faster rate although new orders rose at their slowest since February. It has been a rare beneficiary of the trade war as manufacturers shift their Chinese operations there to sidestep US tariffs.

While G20 leaders said they stand ready to take further action to prop up growth, many major economies have little fiscal and monetary space to battle another recession. REUTERS

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