European shares fall sharply after China factory contraction

A reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction.

Gross domestic product dipped to 7% in the second quarter, and economists expect the figure to trend lower over the next few years.

The private Caixin/Markit manufacturing purchasing managers’ index (PMI) dropped to 47.1 from 47.8 in July. The result down from July’s final reading of 47.8 which was the worst outcome in 44 months.

He Fan, the chief economist for Caixin Insight Group, a Chinese financial publisher, said in a statement the index showed there is “still pressure on the front of maintaining growth rates”.

“Real GDP growth is probably slipping under 7.0 percent in the second half of 2015”, wrote PNC Bank’s economist Bill Adams after the PMI number came out.

Thirteen of twenty traders and analysts surveyed by Bloomberg this week were bearish on copper after the metal slumped below $5,000 for the first time in more than six years.

Authorities accept the need to steer China’s growth lower to make it more sustainable and driven by consumer demand rather than investment, but have taken stimulatory measures to put a floor under the slowdown.

“We still think the downside risks to short-run growth are now overstated”, he said, adding the government “has plenty of policy ammunition” and will not allow growth to slip much further.

“China today is no longer just the “factory” of the world”.

U.S. stock futures fell to a 6 month low after the survey, while Japan’s Nikkei stock index fell 3 percent, while copper and oil prices were both set for steep weekly losses, pegging back commodity related shares.

Output, new export orders and employment all declined at faster rates than in July.

However, the FTSEurofirst 300 was supported of its lows after data showed an unexpected acceleration in Euro zone business growth this month, while German manufacturers grew more strongly than expected.

Chinese policymakers also have to contend with the possibility of capital outflows caused by expectations of more devaluations of the yuan following last week’s surprise change in exchange rate policy.