Factories stall worldwide, so crude oil bid higher

Don’t fight them. Go with them until the opportune moment.

LONDON/SINGAPORE (Reuters) – Manufacturing activity is contracting across Europe and most of Asia, data showed on Thursday, and a Chinese official declared that the world economy faces a worse situation than in 2008 when Lehman Brothers collapsed.

Factory activity shrank even further in the euro zone, reinforcing the view that the debt-strapped region is in recession, while British manufacturing contracted at the fastest pace in two years, raising the risk that the UK economy may suffer the same fate.

This has been the case for much of the developed world for several months, with the exception of pockets of better news from the United States. But the slowdown now appears to be spreading to economic powerhouses of the developing world.

Adding to the gloom, new U.S. claims for unemployment benefits rose unexpectedly last week, popping above 400,000 for the first time in over a month and reinforcing the view that the battered labor market was healing only slowly.

China’s official purchasing managers’ index (PMI) showed factory activity shrank in November for the first time in nearly three years, while a similar PMI showed Indian factory growth slowed close to stall speed.

Both China and Brazil eased monetary policy on Wednesday. It came alongside coordinated action from the world’s biggest central banks to try to prevent another credit crunch by lowering the cost of dollar swaplines.

“The big picture here is this is an unwinding of a 20-year debt bubble,” said Peter Dixon, global financial economist at Commerzbank. “It’s going to be painful, and it’s going to be nasty. What policymakers are aiming for is a smoothing of the path.”

But those policymakers appear to be getting more worried.