Wednesday, November 23, 2011

If China is catching a cold...

...the world might catch the flu.

The economic news coming from China is bound to leave many nations worried. Reuters reports that China could be heading towards a recession.
China’s factory sector shrank the most in 32 months in November on signs of domestic economic weakness, a preliminary PMI survey showed, reviving worries that China may be slipping towards a hard landing and fuelling fears of a global recession.
The steep fall in the HSBC flash purchasing managers’ index (PMI) to 48 in November from 51 in October largely reflected domestic weakness as both output and new orders shrank even as export orders continued to grow.
Needless to say, world markets are expecting to take a thumping. The Australian, distributing this report on Thursday morning (Australian time) provides the first glimpse at the numbers
Markets reeled at midday on the release of weak Chinese manufacturing data, adding to the selling pressure already being felt by Australian resources stocks -- including the behemoths BHP Billiton and Rio Tinto -- thanks in part to the passage of the mining tax.
The worry was compounded on reports yesterday afternoon that the governments of Belgium, France and Luxembourg were seeking information on how much money Belgium bank Dexia needs as it loses access to funding markets, rekindling fears on global trading desks of a 2008 Lehman Brothers-style moment in financial markets, when credit markets froze. Amid warnings from Westpac chief Gail Kelly, reported in The Australian yesterday, that Australia was not immune from the disease spreading through financial markets, markets were yesterday rocked by data from China indicating that a key manufacturing index had hit a 32-month low.
For an examination of what the problems in China pose for Europe, consider this report from The Economist. And Reuters examines why the combination of China's factory orders slide combined with decreasing spending in the U.S. could pose a double whammy.

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