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Saturday, 2 July 2011

Global Manufacturing Slows, Posing Dilemma as Prices Rise

July 1, 2011

Manufacturing growth is slowing from China to Europe, creating a dilemma for central bankers considering higher interest rates to combat inflation.

China’s factory index fell to the lowest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months, while Italy, Ireland, Spain and Greece contracted. In the U.K. and India, output growth also slowed.

“There is a broad-based slowdown taking place in the manufacturing sector,” Silvio Peruzzo, an economist at Royal Bank of Scotland Plc in London, said by telephone. “But it’s still too early to jump on the view that we’re heading toward an environment where activity will be contracting.”

Europe’s debt crisis and slowing U.S. growth are damping demand for goods, putting pressure on policy makers to delay further rate increases even as prices gain. Inflation quickened to the fastest pace since 2008 in China, exceeded 20 percent in Vietnam last month and sparked protests in India. Euro-area inflation remained at 2.7 percent in June, exceeding the European Central Bank’s 2 percent ceiling for a seventh month.

A rebound in U.S. manufacturing may ease concern about a global slowdown. A report today showed factory production unexpectedly accelerated in June, indicating that the industry is recovering from shortages of parts and components from Japan following the March earthquake and tsunami.
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