OECD sees slowdowns deepening in India, China

Reuters: China and India have entered more marked economic slowdowns while growth continues to moderate in most major industrial economies, the OECD said on Monday.

Separately Asia’s two biggest exporters China and Japan also showed further signs of slowing down in data published on Monday, signalling risks of a fresh slide in global demand, as a top Federal Reserve official said he was downbeat on the prospects of the US economy.The Paris-based economic think-tank said its composite leading indicator for China, which provides a measure of future economic activity, eased to 99.2 in May from 99.4 in April, slipping further away from the long-term average of 100.

For India, the indicator fell to 97.8 from 98.0, also below the long-term average of 100.

“Composite leading indicators ... point to an easing of economic activity in most major OECD economies and a more marked slowdown in most major non-OECD economies,” the Organisation for Economic Cooperation and Development.

The overall indicator for OECD countries, covering 33 countries, eased to 100.3 from 100.4, a level consistent with moderating growth.

The index for the euro area held steady at 99.6 for the third month in a row, a level indicating a slowdown. The United States remained in growth territory with a reading of 100.9, though that was down from 101.1 in April. Japan saw its indicator ease to 100.7 from 100.8.

Outside the OECD, Brazil was alone in seeing activity pick up with a rise to 99.2 from 99.

Japan’s core machinery orders in May plunged 14.8 per cent from April, with the key gauge of capital spending sinking far below analyst expectations of a 3.3 per cent decline. That raised the risk that growth momentum in the world’s No. 3 economy will stall if firms start to scale back investment.

Meanwhile Chinese consumer inflation eased more than expected in June, with producer prices in outright deflation for a fourth month, signalling that demand for goods from China’s vast factory sector – especially from foreign customers – is declining as the global economy weakens.

Both data points underscored a downbeat assessment of growth prospects in the world’s biggest economy by Boston Federal Reserve President Eric Rosengren in a speech in the Thai capital Bangkok on Monday.

“My pessimism is rooted in an expectation of weakness in investment, net exports, and government spending,” including “concerns about economic and financial conditions in Europe,” said Rosengren, who described himself as more pessimistic than policy-setting colleagues on the Federal Open Market Committee.

He’s not alone in feeling grim about near-term US economic prospects, with Wall Street economists more convinced than ever that the Fed will embark on a so-called QE3 programme – a third round of quantitative easing via large-scale bond purchases.

A Reuters poll on Friday revealed that primary dealers, the large financial institutions that deal directly with the Fed, expect a 70 per cent chance of the $ 2.3 trillion QE programme being expanded.

The poll was conducted after the US Labour Department reported that employers created only 80,000 jobs in June, far fewer than needed to bring down the 8.2 per cent unemployment rate and adding to evidence that Europe’s debt crisis was weighing on global growth.

Rosengren, who does not have a vote on Fed policy this year but will next year, told reporters after his speech that it was “appropriate to have more quantitative easing” from the Fed.

His comments were echoed by fellow Fed official, Chicago Fed President Charles Evans, also speaking in Bangkok.

“Additional monetary accommodation is need to more quickly boost output to its full potential level,” said Evans, one of the Fed’s most dovish voices. “The economic circumstances warrant extremely strong accommodation.”

Analysts also believe the Bank of Japan might be compelled to expand its own asset purchase programme on Thursday at the conclusion of its monthly policy-setting meeting.

“The BOJ looked like it would be on hold this week, but given weak US economic data and monetary easing by central banks in China and Europe, there is now a 50 per cent chance that the BOJ could ease this week,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

A surprise interest rate cut from the People’s Bank of China last week – the second in a month – on the same day that the European Central Bank also cut rates and the Bank of England expanded its quantitative easing programme has only served to deepen the downside risks being priced into asset markets.

Asian shares and the euro slumped on Monday as sluggish US jobs data and cooling inflation in China deepened worries about slowing global growth.

“What investors are most sensitive to right now is the risk of an economic deceleration around the world,” said Tetsuro Ii, President of Commons Asset Management.

A raft of recent profit warnings from Chinese firms covering a swathe of sectors from sportswear to steel production and property development clearly demonstrate the downturn in prospects for the real economy – not just in the aggregate data.