Australia has suffered its largest quarterly GDP decline in 20 years. India’s economy, while still growing, has sharply decelerated — well below analyst estimates. Manufacturing in China has slowed to its slowest pace of growth in nine months, while manufacturing in South Korea hit a six-month low. Japan’s economy, still recovering from a natural and nuclear disaster, shrank at a 3.7% annual pace in the first quarter, and has been warned by Moody’s its credit rating may soon be downgraded.
Such has befallen Asia, the world’s growth engine. Since the economic crisis that has mainly imperiled the United States and eurozone economies, the world has looked to Asia as the last redoubt of economic buoyancy. What can the still struggling economies of the West expect when Eastern economies show clear signs of slowing?
Meanwhile, back in the sickly West, Moody’s has further downgraded already junk-level Greek government bonds. And the Chicago regional Fed branch reported the biggest one-month deceleration in manufacturing in two and half years, following other recent reports from across the U.S. of declining manufacturing. Confirming the apparent downtrend, the Conference Board released its survey of consumer confidence, which fell sharply in May to 60.8, though economists expected the leading indicator to rise from its April index level of 66 to 67.5.
On Wednesday the Dow Jones industrial average plunged 280 points, or 2.2%, an inauspicious start to a month that will see the end of QE2 — the Fed’s $600 billion purchase of U.S. government bonds — as well as other U.S. stimulus programs, including federal aid to the states.
In the opinion of one analyst, the bond market’s explosive rally Wednesday — the 10-year Treasury note’s yield fell to below 3% for the first time since December — is an indication of an unannounced third round of quantitative easing. Simon Maughn, co-head of European equities at MF Global, told CNBC that "the bond market is going in one direction … which is telling you quite clearly the direction of economic travel is downwards. Downgrades. QE3 is coming.” Maughn said the new monetary stimulus he predicts will have the effect of driving commodities and stocks back up.