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September 03. 2012 8:19PM

Factory gloom deepens and orders shrink

LONDON/BEIJING — A contraction in manufacturing business spread further around the world in August as the euro zone’s troubles inflicted more damage on the global economy, business surveys showed on Monday.

The three-year-old sovereign debt crisis has probably thrown the 17-nation euro zone back into recession in the current quarter. With no firm signs of any resolution, households and companies are wary of spending and demand for goods is drying up.

Worryingly for European Central Bank policymakers meeting this week, the downturn that began in smaller euro zone economies is now clearly sweeping through Germany and France. That, in turn, is damaging many of Asia’s export-reliant economies.

“The general picture is one in which we are losing momentum,” said Peter Dixon, an economist at Commerzbank.

“Growth is going to struggle, not just in the euro zone but everywhere, over the next few months until authorities find a way to inject some positive sentiment.”

Markit’s final Eurozone Purchasing Managers’ Index (PMI) for manufacturing fell from an earlier flash reading of 45.3 to 45.1, above July’s three-year low of 44.0. But that was its 13th month below the 50 mark separating growth from contraction.

Britain bucked the trend by posting a surprise rise in its PMI — although it still showed contraction — and similar data expected from the U.S. Institute for Supply Management on Tuesday is forecast to show a reading of 50.

In Sweden, which has consistently outperformed the rest of Europe, the PMI tumbled unexpectedly to a three-year low as exporters’ long-standing resilience began to erode.

China’s official PMI fell below 50 for the first time since November, while a similar survey from Markit, sponsored by HSBC, showed activity shrinking at its fastest pace since March 2009.

HSBC PMIs covering Asia’s other major exporters told a similar tale. South Korea’s reading was below 50 for the third month and Taiwan’s PMI fell to its lowest level since November.

The reports showed new orders under pressure as fears grow that the euro zone is sliding into recession and the United States struggles to build up any economic steam.

Even in India, where the manufacturing sector has expanded without a break for more than three years, new export orders fell in August at their steepest pace since October. Indonesia’s factory activity also expanded in August, but new export orders fell for the fifth month in a row.

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