Signs of world economy slowing down

Fri, 23 Sep Pre-Open

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The stock markets in August 2011 saw their worst decline since 2008 on the back of fears that the world economy is slowing. Many people thought that the markets are overreacting and the situation is not that bad. But those people might just be proved wrong. There are various signs to indicate that the global economic train is coming off tracks.

HSBC's preliminary China Manufacturing Purchasing Managers Index, or flash PMI, fell to a 2 month low in September, indicating a broadening slowdown in the Chinese economy, with industrial output swinging from a modest expansion to deterioration.

The US economy is in a bad shape as well. US economy is primarily a consumer driven economy and depends on consumers to spend money. In August, the University of Michigan Consumer Sentiment Report showed the third worst reading in history. The sharp drop in consumer sentiment suggests consumers are likely to pullback sharply on spending in the months ahead. And yet one more sign of the US economy slowing down or even slipping into recession was the recent GDP report which showed real GDP on a year-over-year basis has slipped below the 2% growth mark. Going back more than half a century shows this 2% level is vitally important to hold because the US has always slipped into a recession within 12 months. Thus, the recent 1.6% growth rate is not an encouraging sign for the U.S. economy going forward.

The debt crisis is weighing heavily on the European economies. Even Germany and France are showing signs of slowdown. The so called PIGS countries are either growing slowly or are in recession. These countries are not going to post robust growth numbers any time soon because of the austerity measures they have undertaken to reduce debt.

Apart from this, two key commodities companies, Rio Tinto and Alfa Natural Resources have warned that the world economy is slowing. Rio Tinto, world's second largest mining group said that although their order books were full and pricing remains firm, the markets have become much weak over the last 2 months and pricing might come under pressure going forward as demand is deteriorating and the physical markets where commodities are sold for immediate delivery is becoming soft. Coal miner Alfa Natural Resource also witnessed a sudden drop in coal exports to Asia due to curtailed customer activity levels and has lowered its guidance for exports in the coming months.

The world economy is certainly going through turbulent times. The European debt crisis coupled with a slowing world economy as well as high inflation in emerging economies can be best described by the World Bank Chief's comment that the "World is entering a dangerous period".