The world’s biggest economies had a bad May (except Japan)

May 21, 2015, 11:50 AM UTC
BEIJING, CHINA - MARCH 27:  China's Premier Li Keqiang speaks during the Indonesia-China Economic Cooperation Forum at the Great Hall of the People on March 27, 2015 in Beijing, China.  (Photo by Feng Li-Pool/Getty Images)
BEIJING, CHINA - MARCH 27: China's Premier Li Keqiang speaks during the Indonesia-China Economic Cooperation Forum at the Great Hall of the People on March 27, 2015 in Beijing, China. (Photo by Feng Li-Pool/Getty Images)
Photograph by Feng Li — Getty Images

China’s manufacturing output fell at its fastest rate in over a year in May, raising the pressure on Beijing to add more stimulus to the economy or risk missing its growth target for the year.

The output component of a closely-watched Purchasing Managers’ Index for China fell to a a 13-month low of 48.4, well short of the 50 level that signifies no change, according to its compilers HSBC and research firm Markit. The overall PMI, which includes things like new orders and employment levels, put in a slightly better performance of 49.1, up a touch from April’s 48.9 but still short of market expectations.

Elsewhere, the PMI for the Eurozone (including both manufacturing and services) suggested that the initial sugar rush from the European Central Bank’s quantitative easing program and the collapse in oil prices may be fading. The PMI fell to a three-month low of 53.4 from 53.9 in April. It was dragged down in particular by Germany, where activity grew at its slowest rate in five months.

On the plus side, Eurozone employers were hiring at the fastest rate in four years, Markit said. However, it said that the new business components in its index needed to improve if that is going to be sustained.

In China, meanwhile, firms continued to shed labor as they have done for over a year, but at a slower rate than in March.

China’s big economic policy shift–away from heavy industry and exports to more domestically-focused service industries–is crucially dependent on finding jobs in the service sector for those whom the manufacturing sector no longer needs. Markit’s Annabel Fiddes said in the release that “softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near term.

Premier Li Keqiang was quoted by the official Chinese news agency Xinhua as saying he’s still confident the country will hit its official target of 7% growth this year, despite ongoing problems with a deflating housing bubble which has left the country with significant overcapacity in sectors such as steelmaking and construction. Fiddes said that the deflationary pressure that is creating “leaves plenty of scope for the authorities to implement further stimulus measures.”

The economy grew at an annual rate of 7% in the first quarter, but that was down from 7.3% in the fourth quarter of 2014 and the slowest rate in 25 years, despite a series of steps by the government and central bank to support the economy in recent months.

There was better news from Japan, where output and employment both rose as the PMI posted a three-month high, suggesting that the economy is continuing to put last year’s tax-hike-related nightmares behind it. Earlier this week, the government said GDP had grown 0.6% in the quarter, the strongest performance in a year.