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August reveals extent of global economic slowdown

by sourcingfocus.com

August was a month of economic gloom, with reports of slowdown in China and increased instability in Europe. Rising expectations of Greece’s expulsion from the Eurozone and difficulties arising in Spain have further compounded economic uncertainties. 

China has reported a slowdown in manufacturing, with August placing figures at a nine-month low. The official Purchasing Managers’ Index (PMI) which measures manufacturing activity, measured as reading of 49.2 for the country, the lowest seen since a drop in November 2011. China’s economy also reported the lowest annual growth figures in three years during the second quarter. 

Europe also reported reduced PMI figures, with average PMI reading below 50 for the 17 countries employing the euro. A PMI reading of below 50 shows contraction in manufacturing output. The UK also reported decreased productivity with a PMI score below 50.

August also saw reports of European server market slowdown, with Gartner reporting a decline in revenue of 2.9 percent in the second quarter. Gartner analyst Jeffrey Hewitt said that in regards to server sales that, “In terms of revenue growth, only Asia/Pacific and the United States produced growth for the quarter, all other regions declined.”

A survey from the EEF manufacturers’ association showed that the UK’s overall manufacturing output had entered into its lowest level since the end of the last recession in 2009. The survey comes after both the British Chambers of Commerce and the CBI devalued their growth forecasts for 2012 with the Office for Budget Responsibility expected to follow their prediction. Lee Hopley, the EEF’s chief economist, said, “overall confidence appears to be draining away.”

As the economic outlook in Europe continues to remain bleak, outsourcing contracts are reducing in quantity. In KPMG’s pulse survey, support services contracts were not being renewed so readily, as businesses demand costs savings and become more prepared to wait for clear evidence of efficiency before embarking on outsourcing contracts. 

While outsourcing contracts are being impacted upon by the global economic downturn, businesses as well as bunkering down and reducing expenditures, are also turning to the outsourcing of services during difficult times, where cost-savings are readily apparent. 

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