By: Dr. Mike Campbell
Fresh concerns that the global recovery is running out of steam have been provided by US data which has just been released. The figures for May show that manufacturing output in the world’s largest economy has fallen to its lowest level since 2009. The gloomy news sent the Dow Jones Industrial Average down by 2.2%; its biggest one day fall in ten months.
The news also led to falls in Asian markets. The Nikkei 225 index was down by 1.7% and the Australian stock exchange also saw 2% wiped off the value of shares.
A Closer Look at the US
Adding to the mood of depression, figures for new hirings in the US private sector in May were lower than had been anticipated. Hiring always lags behind the economic recovery, so the lack-lustre performance added to the sentiment that the recovery is faltering. Weaker demand in the US economy feeds through to Asia’s export driven economies and explains the decline in those stock markets. South Korean stocks slid lower by 1% and Hong Kong saw a 1.4% decline.
Political factors are also making investors nervous. The political impasse in the USA over the debt ceiling suggests that politicians are willing to place party rivalries above the national good – at least in the short term. In Japan, Prime Minister Naoto Kan faces a no-confidence vote amid rumours of a split in the ruling party. This is the last thing that Japan needs as it struggles to recover from the earthquake and ensuing tsunami that devastated parts of the country in March. Analysts suggest that the authority of the government will be harmed irrespective of the outcome of the vote. A snap election would deflect political efforts away from the rebuilding and clearance activities. If the Prime Minister survives the vote, it is believed that his position will have been substantially weakened in any case. Japan returned to recession in the aftermath of the disaster.