EU,China private sector slowdown heightens recession worries

Earlier data from China showed once-booming manufacturing contracted for a third consecutive month,suggesting the world’s number two economy may not be able to provide much of a counterweight to the West.

There is a global slowdown … the US Federal Reserve acted yesterday,the Bank of England talked about the potential to do more quantitative easing. There is no doubt the risks of a global recession have grown,said Jeavon Lolay,head of global research at Lloyds Banking Group.

The US Fed warned of significant risks to the already weak economy and launched a new plan to lower long-term borrowing costs on Wednesday,just hours after the BoE signalled it was ready to pump in more money.

The Flash Markit Eurozone Services Purchasing Managers’ Index (PMI),which measures business activity at thousands of firms from banks to restaurants,sank to 49.1 this month from August’s 51.5,far below a consensus forecast of 51.0.

None of the 37 economists polled by Reuters had predicted that services activity would contract and this is the first time the index has been below the 50 mark that divides growth from contraction since August 2009.

It was a similar picture in the manufacturing sector,which had driven a large part of the bloc’s recovery. The factory index dropped to its lowest level in two years at 48.4,slightly below expectations of a fall to 48.5.

The numbers are still consistent with some GDP growth,so it does not signal recession just yet,said Martin Enlund at Handelsbanken.

Meanwhile,economists and Chinese officials have widely predicted China’s growth will slow,largely because of waning exports. The country,known as the factory to the world,is especially vulnerable to fading demand from the United States and Europe,its two biggest export markets.

HSBC’s China Flash PMI dipped to 49.4 from August’s final figure of 49.9.

In the face of rising inflationary pressures the central bank has tightened policy but many economists say it will pause its year-long campaign to see how the global turmoil plays out.