China’s factories stumble as Germany’s shrink

China and Germany, the world’s two biggest exporters, showed new signs of weakness in major business surveys yesterday, increasing doubt about the strength of global demand and economic recovery.

The only question is why the ECB has not cut rates already

The survey comes as a rethink by European leaders of their budget-cutting is gaining momentum – that, in the words of European Commission President José Manuel Barroso, austerity has reached its limits as a policy.

Business activity in Germany shrank for the first time in five months in April, while growth among the legion of Chinese factories slowed to a near-crawl as export orders dwindled.

Although purchasing managers’ indexes published yesterday showed France may have passed the worst of its downturn, Germany’s relapse means the wider eurozone still looks a long way from a return to economic growth.

The unexpected decline in German activity also adds a new dimension to next week’s European Central Bank policy meeting.

“With Germany unable to offset the austerity and credit crunch drag on growth in the (weaker parts of the eurozone), and with excess capacity growing and business expectations falling, the only question is why the ECB has not cut rates already,” said Lena Komileva, director of G+ Economics.

Europe’s politicians are becoming increasingly focussed on what will get the economy growing again, as the recession has undermined governments’ efforts to get their finances in order.

Finance leaders of the G20 economies on Friday edged away from a long-running drive towards government austerity in rich nations, rejecting the idea of setting hard targets for reducing national debt in a sign of worries over a sluggish global recovery.

The flash HSBC Purchasing Managers’ Index for April fell to 50.5 in April from 51.6 in March but was still stronger than February’s reading of 50.4.

The figures followed an unexpected contraction in export orders in March to Taiwan, one of the region’s biggest providers of tech gadgets, signalling that Asia‘s trade-reliant economies may be losing further momentum.