The global economy is ending the year in a fragile state with factory activity shrinking in China, eurozone business growth remaining weak, and emerging market giant Russia in a spiraling currency crisis.
“These are uncertain times again and there is a risk of another global downturn,” said Stephen Webster, chief European economist at 4CAST, Reuters said.
Poor to mediocre business surveys in Asia and Europe released on Tuesday are likely to put pressure on both the European Central Bank and People’s Bank of China to come up with more stimulus.
They also threaten the overall 2015 outlook give the two economies’ huge global reach. Data for the United States was not released yet.
But it was events in Russia that were most eye-catching. Russia’s central bank took drastic action to defend its ruble currency in a surprise midnight raising of interest rates by 650 basis points to 17 percent. It has lost around 50 percent to the dollar this year.
Russia, however, is also being hit by Western sanctions over its relations with Ukraine.
A relentless slide in oil prices – Brent crude has almost halved in price since June – while a blessing to most rich world consumers, is becoming a curse for countries reliant on resource exports.
The Russian economy still depends in large measure on sales of oil and gas, which account for about two-thirds of exports and Indonesia became the latest Asian casualty when its currency caved to fresh 16-year lows.
Moody Data
Eurozone businesses are ending 2014 in slightly better shape than thought but growth remains weak and firms are still cutting prices to encourage trade, surveys showed.
Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies and seen as a good growth indicator, rose to 51.7 from a 16-month low of 51.1.
“Although the PMI has not been a perfect guide to GDP over recent quarters, that suggests that the eurozone economy probably barely expanded in Q4, if at all,” said Jonathan Loynes, chief European economist at Capital Economics.
Still, German analyst and investor sentiment rose sharply in December for a second month running, as a decline in the euro and oil prices boosted hopes for a pickup although a composite PMI covering Europe’s largest economy showed weaker growth.
Coupled with a PMI for France, which highlighted a continued decline, the eurozone survey suggested there was a renewed upturn in the bloc’s smaller periphery countries.
Chris Williamson, Markit’s chief economist, said the PMIs pointed to fourth-quarter GDP growth of 0.1 percent, weaker than the 0.2 percent predicted in a Reuters poll last week, but that very weak expansion is coming at a cost: firms cut prices for the 33rd month.
Inflation in the bloc cooled to a five-year low of just 0.3 percent last month, well within the European Central Bank’s “danger zone”, adding to expectations for more policy easing.
In Asia
The mood in Asia was little better after a measure of Chinese manufacturing activity from HSBC/Markit fell to 49.5 in December from November’s 50.0. Anything below 50 indicates contraction.
“The manufacturing slowdown points to a weak ending for 2014,” said Hongbin Qu, chief economist for China at HSBC.
“The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months.”
Worries about disinflation, and whether it could morph into outright deflation, have spread worldwide and the risks are such that investors are wagering the US Federal Reserve might go slow on policy tightening next year even if its economy continues to outperform.
