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Falling oil prices and sluggish demand continue to roil global economy
July 26, 2015, 12:15 pm

The global economy started the second half of the year on shaky ground as business activity in the eurozone was weaker than expected and China's vast factory sector appeared to be contracting at the fastest pace in 15 months in July. The surveys come just months after the European Central Bank embarked on a 60 billion euro a month bond-buying program and as Beijing said it would allow its yuan currency to fluctuate more widely within its trading band as a way to support trade.

Although Athens has accepted the conditions imposed on it by its international lenders, and approved a second package of reforms required to start talks on a financial rescue deal, Greece's brush with bankruptcy meant July was a turbulent month for the eurozone. The euro has sunk more than nine per cent against the dollar since the start of the year, hit by the ECB's massive cash injection and fears a Greek exit from the bloc would bring the whole union crashing down. That has made the bloc's goods cheaper abroad but done little for demand.

Fears of faltering demand in China, the world's largest commodity buyer, piled the pressure on resource prices, sending gold to a five-year low and copper to a six-year trough. It also added to the woes of emerging market nations already struggling with the risk of a rise in US interest rates later this year. A survey of executives in over 420 Chinese manufacturing firms found output, new orders and export orders all decreased.

Meanwhile, oil prices neared four-month lows on Friday, set for their fourth straight week of declines, after data showed a contraction in China's factories and the dollar rose against a basket of currencies.

Brent crude was down 28 cents at $54.99 a barrel by 1345 GMT, having hit an intraday low of $54.80, its lowest since early April. Brent has lost nearly 13 per cent in July, its largest one-month fall since a near 19 percent loss in January, although downside has been less severe last week.

WTI crude oil has lost 18 per cent in July, the biggest one-month decline since December and the second-largest monthly loss in the last seven years. Both benchmarks have seen losses this month, partly due to a stronger dollar, which makes it more profitable for non-US investors to sell commodities, and partly on expectations of greater Iranian supply following last week's deal over Tehran's nuclear program with world powers.

Analysts believe that the prospect of lower oil prices could force the world's top producers to cut spending as they face the prospect of yet another hit to quarterly profits.

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