LONDON/HONG KONG (Reuters) - Factory growth stuttered across the world in July, heightening concerns about the global economic outlook as an intensifying trade conflict between the United States and China sent shudders through trading partners.

Global economic activity remains healthy, but it has already passed its peak, according to economists polled by Reuters last month. They expect protectionist policies on trade, which show no signs of abating, to tap the brakes. [ECILT/WRAP]

But slowing growth, wilting confidence, and trade war fears are not likely to deter major central banks from moving away from their ultra-loose monetary policies put in place in the wake of the 2008 financial crisis.

“Growth overall is still there, and while there are risks, it’s holding up. The big picture of a trade war and protectionism is that it is a slow death - a death by a thousand paper cuts instead of anything sudden and shocking,” said Richard Kelly, head of global strategy at TD Securities.

“Growth is still resilient, unemployment rates are low, inflation and wages are rising - that’s the bigger picture and so they (central banks) have to keep tightening in the face of that,” he said.

Last month, China and the United States imposed tit-for-tat tariffs on $34 billion of each other’s goods and another round of tariffs on $16 billion is expected in August.

U.S. President Donald Trump’s administration, according to a source familiar with its plans, is poised to propose 25 percent tariffs on a further $200 billion of imports, up from an initial proposal of 10 percent. Its threat of tariffs on the entire $500 billion or so worth of goods imported from China still stands.

Beijing has pledged equal retaliation, although it only imports about $130 billion of U.S. goods.

World stocks slipped, bond yields edged up and the U.S. dollar was little changed on Wednesday despite fears of an imminent escalation in the U.S.-China tariff war. [MKTS/GLOB]

FILE PHOTO: A worker walks past second-hand robots in a factory in Shanghai, August 21, 2015. REUTERS/Aly Song/File Photo

Morgan Stanley analysts estimate an 81-basis-point impact on global growth in a scenario of 25 percent tariff hikes across all imports from China and Europe, with U.S. growth slowing by 1.0 percentage point and China’s by 1.5 points.

Despite lethargic expansion rates, the European Central Bank last week reaffirmed plans to end its 2.6 trillion-euro stimulus program this year and the Bank of England is widely expected to raise borrowing costs on Thursday [BOE/INT].

On Tuesday, the Bank of Japan pledged to keep its massive stimulus in place but made tweaks to reduce the adverse effects of its policies on markets and commercial banks as inflation remains stubbornly out of reach.

China has been cutting bank reserve requirements to ease the pain of its campaign to reduced risk in the financial system for smaller companies and support growth. It is also planning more spending on infrastructure to cushion the impact of trade tensions.

Nevertheless, any fiscal and monetary measures would take time to filter through.

“China’s economy is on track to slow this quarter and next,” said Julian Evans-Pritchard, senior China economist at Capital Economics in Singapore.

In the U.S., the Federal Reserve kept interest rates unchanged on Wednesday but characterized the economy as strong, keeping the central bank on track to increase borrowing costs in September.

SIGNS OF SLOWDOWN

European factory growth remained subdued in July, with scant sign of a pick up anytime soon. Manufacturers across Asia provided evidence of a loss of momentum across the region and in the U.S. purchasing manager surveys showed activity slipping.

IHS Markit’s July final euro zone manufacturing Purchasing Managers’ Index only nudged up to 55.1 from June’s 18-month low of 54.9, unchanged from an initial reading and still comfortably above the 50 level that separates growth from contraction. [EUR/PMIM]

Meanwhile, British factories lost momentum and manufacturers were their most downbeat in nearly two years, likely raising fresh questions about the actual need for a Bank of England interest rate hike on Thursday [GB/PMIM].

China’s Caixin/Markit Manufacturing PMI dropped to 50.8 from June’s 51.0, broadly in line with an official survey on Tuesday.

The headline number remained above the 50-point mark for the 14th consecutive month, but a reading on new export orders showed a marked contraction at 48.4.

“The data breakdown indicates that an uncertain demand outlook amidst the U.S.-China trade tariffs weighed on both output and sentiment,” said Aakanksha Bhat, Asia economist at HSBC in Hong Kong.

The shipping container market, in which the vast majority of finished manufacturing goods are imported and exported, shows a similar gloomy picture: the Harpex container index CHT-IDX-HARPX has fallen by 10 percent from the highest levels since 2011 that it hit in June.

U.S. manufacturing activity slowed in July amid signs that a robust economy and import tariffs were putting pressure on the supply chain, which could hurt production in the long term.

“The rest of the year will be more challenging,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “Businesses are already having a tough time with tight labor markets and finding qualified workers and they have to deal with higher costs and slowing demand from overseas.”

The Markit U.S. manufacturing sector final PMI for July was 55.3 compared to 55.4 in June and the Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 58.1 last month from 60.2 in June.

ISM described demand as remaining robust and noted “employment resources and supply chains continue to struggle.” It also said manufacturers were “overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business.”