Financial markets around the world sell off sharply after drop in Chinese exports

This article is more than 1 year old

This article is more than 1 year old

Fears are growing over the state of the global economy after China recorded a shock fall in exports, while European factory output declined by the biggest margin in almost three years.

In a sign that the worldwide slowdown is gathering pace, official figures showed Chinese exports were down 4.4% in December – the largest fall since 2016 – on the back of faltering demand in most of its key markets. Imports fell 7.6% to reflect waning domestic demand.

The unexpected downturn for the biggest global exporter of manufactured products came as eurozone industrial output shrank in November.

US-China trade war: is the time ripe for peace to break out? | Larry Elliott Read more

The EU statistics office, Eurostat, estimated industrial production slipped 1.7% in November compared with the previous month, and 3.3% on the year, reflecting the struggles facing several European economies in recent months.

The latest snapshot confirmed disappointing readings of industrial output in several major eurozone nations, raising the prospect of some of the EU’s biggest economies, including Germany and Italy, slipping into recession in the second half of 2018.

Several major European economies, including the UK, have struggled with faltering levels of car production in recent months as factories adjust to handling new vehicle emissions tests introduced after the VW scandal.

Demand for diesel vehicles has dwindled, while car sales in China last year fell for the first time since 1992, compounding the woes of European manufacturers that had previously benefited from the growth of the world’s biggest vehicle market.

However, economists said some of the factors behind the decline were likely to have been temporary, such as work stoppages due to the gilets jaunes (yellow vests) protests in France.

Vanda Szendrei, an economist at the consultancy Oxford Economics, said manufacturing orders were improving in Germany and unemployment was at a decade-long low, supporting a view that “industrial activity will improve” in Europe’s largest economy.

Financial markets around the world sold off sharply on Monday, with the FTSE 100 shedding 63 points – a fall of 0.9% – and losses on bourses across Europe. The Dow Jones had shed more than 70 points, a fall of 0.3%, by early afternoon trading in New York.

Fears have been mounting over the health of the world economy for several months, as the US-China trade dispute serves as a handbrake on global trade. Although there are early signs of a breakthrough in talks between Washington and Beijing, global economic growth has taken a knock.

The Organisation for Economic Co-operation and Development (OECD) warned most of the world’s biggest economies are showing signs of easing growth momentum, with the biggest declines in France and Britain.

The British economy has edged closer to stalling point in recent months as the risks connected to Brexit begin to materialise. UK growth has, however, outpaced many of the largest EU economies.

The OECD said its composite leading indicators – gauges of economic activity that anticipate turning points for between six and nine months ahead – also showed easing growth momentum in the US, Germany, Canada, Italy and the euro area as a whole.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Despite the disappointing data from China, the OECD said the country’s industrial sector was still showing signs of “stable growth momentum”.

Although factory output declined in December, total Chinese trade last year increased by 12.6% compared with 2017, to stand at $4.6tn (£3.6tn). Exports rose 9.9%, while imports increased 15.8%. China also grew its trade surplus with the US by 17% to $323.3bn, the highest figure since 2006.

Donald Trump’s threat to raise tariffs on $200bn of Chinese imports from 10% to 25% after 1 March still stands, unless a major breakthrough in talks can be made. Analysts said failure to resolve the dispute would have a big impact on the world economy.

Evelyn Herrmann at Bank of America Merrill Lynch said: “We still have a series of unknowns that keep us nervous, including euro area political risks and Brexit. But there is more. The car sector is going through lots of change and the Damocles sword of US tariffs can still drop.”