Manufacturing is in retreat, threatening to take the global economy down with it

If the world’s factories are any measure, then the global economy is looking rather gloomy at the moment.

Key points:Global manufacturing output is at a three-year low, teetering on contractionAround 17 central banks are expected to cut rates this quarter to combat the global slowdownExpectations of a 50-basis-point cut from the US Federal Reserve this month have eased

In June, manufacturing output slipped to a three-year low. It is now teetering on contraction.

European output is already in reverse, and has been for some time, dragged down to a large extent by German factories which have been enduring recessionary conditions for much of the year.

As measures of economic health go, Purchasing Managers’ Indexes (PMI) are pretty dependable.

The global PMI, collated by the big investment bank JP Morgan, found the falling June output pointed to manufacturing stalling mid-year.

Currently, JP Morgan’s global composite PMI is holding just above 50 — the mark denoting economic expansion — while the forward-looking “new orders” PMI fell under 50 in May for the first time since 2012.

Part of it can be sheeted back to global trade hostilities, particularly between the US and China, and part of it is just a cyclical economic funk.

Slowdown driving rate cuts

Overall demand is sluggish and inventory stockpiles are not exactly flying off the shelves.

Drilling down into the data, the surveys suggest confidence is sliding and business investment is likely to stay weak for the foreseeable future.

All are regarded as harbingers of a downturn, not a rebound.

The advanced July PMIs start rolling out this week and are likely to have a big say in where interest rates are heading.

Well, they’re heading down — but where, and by how much, are the big questions.

Markets are pricing

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