By Simon Kennedy
Bloomberg News
Tuesday, December 2, 2008

LONDON, Dec. 1 -- Manufacturing activity shrank around the world last month, providing fresh evidence that the global economy is in recession and intensifying pressure on policymakers to respond.

In the United States, manufacturing contracted at the fastest pace in 26 years, while factory indexes in Europe, Russia, China and South Africa showed record shrinkages, reports released Monday showed.

Analysts say manufacturers are suffering because the persistent lack of credit has dampened demand from companies and consumers, forcing them to cut output and jobs.

With the financial crisis that began in August 2007 now morphing into a worldwide economic downturn, analysts at J.P.Morgan Chase estimate that industrial production will decline in developed markets this quarter by the most since 1980.

Because the euro-zone -- the region made up of the 15 nations that share the euro -- is already in its first recession in 15 years, the European Central Bank is facing calls to accelerate the pace of interest rate cuts. The ECB has reduced its benchmark rate twice by half a percentage point since early October, and investors are betting the bank may lower it as much as three-quarters of a percentage point when its governing council convenes on Thursday.

Meanwhile, manufacturers are under pressure in China, where key manufacturing indexes showed a record drop for November. The Purchasing Managers Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said in a statement. A second PMI, released by CLSA Asia-Pacific Markets, also showed a record contraction.

Export orders, output and new orders all shrank by the most since the surveys began as the global financial crisis sapped demand for the nation's toys, textiles and computers.

In Russia, VTB Bank Europe said its measure of purchasing managers fell for a fourth month in November to 39.8, below the level recorded in 1998 when the government devalued the ruble and defaulted on $40 billion of debt.

Indexes for Poland, Hungary, Sweden and the Czech Republic also showed some of the steepest-ever declines as recession struck their main export markets.