Time to recap.

Britain’s economic recovery has taken a knock after growth across the country’s factories slowed to the slowest rate in 14 months.

Manufacturers reported a drop in the growth of output, and new orders. Although overseas demand was still rising, there are signs of a “broad-based” slowdown in the industry. Job creation also slowed.

And the signals from the eurozone have also been disappointing, with France’s factory sector shrinking at a faster pace and Italy falling back into contraction.

The UK manufacturing PMI fell to 52.5 in August, a sharp fall on last month’s 54.8, although still above the 50-point mark that separates expansion from contraction.

Rob Dobson of Markit, which compiled the report, warned:

It is also becoming increasingly evident that UK industry is not immune to the impacts of rising geopolitical and global market uncertainty, especially when they affect economic growth and business confidence in our largest trading partner the eurozone.

It is noticeable that where export orders were reported to have risen, companies mainly linked this to demand from North America, Asia and the Middle East, as opposed to our European partners.

Analysts at Berenberg bank said the Ukraine crisis was clearly hurting Britain’s factories, as well as those in the eurozone, saying:

Russia’s escalation of the conflict in Ukraine has taken a toll on the internationally exposed manufacturing sector, and that effect could yet worsen further in the coming months given recent confidence drops in the more directly exposed core European economies.

Other economists warned that the UK economy looked less balanced, with consumer credit growing at a faster pace even as factory output slowed.

The eurozone PMIs also showed that Europe’s economy was slowing, with activity growth hitting a 13-month low.

In other news...

Germany has posted its first surplus since 1991, for the first six months of the year.

The news that income outstripped borrowing adds to pressure on Berlin to do more to help the rest of Europe.

Holger Sandte, an economist at Nordea Bank, says:

“In other European countries the figures will give confirmation to those who expect more fiscal policy impetus from Germany,”

But finance minister Wolfgang Schauble has said that Europe needs tighter budget control, rather than a splurge of investment.

Over in Greece, the government has downplayed hopes of a breakthrough on debt relief when negotiations with its lenders begins tomorrow....

..and the PM has offered the hope of cutting unemployment once its recession finally ends.

The ruble has hit fresh lows as the Ukraine crisis rumbled on, and EU leaders consider new sanctions; a ban on buying Russian sovereign debt is one option.

While Brazil’s factory has returned to modest growth, while Mexico’s has grown at a faster pace.

I’ll be back tomorrow to do it all again... Goodnight. GW

Over in Greece, finance minister Gikas Hardouvelis has been making strenuous efforts to lower expectations around the talks that begin with the country’s creditors in Paris on Tuesday.

Our correspondent in Athens, Helena Smith, reports:

Gikas Hardouvelis emerged from yet another round of strategising insisting that Greece would not be giving its “troika” of creditors any red-line ultimatums when negotiations begin in Paris on Tuesday.

Instead, he said, the talks would focus on the plethora of structural reforms Athens’ coalition government had implemented over the course of the summer. The “prior actions” were set as a precondition of Greece receiving it next instalment of €1bn in aid.

Hardouvelis told reporters:

“We are not imposing red lines”. We have increased the speed of our work. The fact that we are meeting tomorrow forced us to work all of August and we have moved forward with many structural reforms. We will mostly discuss them, it will be a wide-ranging discussion …. the bar has been raised.

We have to bear in mind who the counterparties are. They are members of the International Monetary Fund, the (European) Commission, and the European Central Bank.”

As such, Hardouvelis said, the Troika could not impose political decisions (such as debt relief, for example)

“They can only speak about the memorandum,” Hardouvelis, said referring to the loan accord outlining the onerous terms of the financial aid package Greece agreed with lenders, adding:

“You must understand their limits. They cannot speak politically.”

The final PMI report of the day has just arrived, from Mexico, and its factory sector has grown at a faster rate in August.

The Mexico manufacturing PMI rose to 52.1, from the nine-month low of 51.5 recorded in July.

The survey shows that activity picked up thanks to increased sales volumes, new products, stronger demand from overseas, and increased hiring.

Over in Greece, the prime minister has vowed to make a dent in the country’s perilously high jobless total.

During a meeting of the government’s employment council on Monday, Greek Prime Minister Antonis Samaras suggested that three quarters of a million new jobs could eb created by the end of the decade.

The Kathimerini newspaper reports:

“Unemployment is society’s most insidious and tough enemy because it undermines the dreams of youth,” Samaras said

“For the first time in 24 quarters there is a projected GDP increase while there is a forecast for new 770,000 jobs by 2020,” the conservative premier said.

Samaras asked the members of the committee to fine tune their proposals ahead of their next meeting in October.

Greece’s jobless rate is currently 27.2%, more than twice the the eurozone average of 11.6%.

There are currently around 3.5 million people in work, 1.3 million unemployed, and 3.3 million classed as ‘inactive’ (having dropped out of the labour force altogether).

Our Athens correspondent, Helena Smith, flags up that Samaras has been holding a series of meetings today to hammer out Greece’s strategy before meeting its lenders in Paris tomorrow.

He used last weekend’s EU summer to push European Commission president-elect Jean-Claude Juncker over the issue of debt relief for Greece.

Another PMI report just landed, showing that Brazil’s factory sector has returned to (modest) growth last month.

Brazilian manufacturing PMI broke over the 50-point mark, which splits expansion from contraction, for the first time since March, rising to 50.2 from 49.1 in July.

That’s encouraging, given Brazil slipped into recession in the last quarter.

HSBC, which compiled the report, suggests that Brazil’s economy may have returned to normal after the disruption of the World Cup. But the economy still looks troubled:

Andre Loes, chief economist for Brazil at HSBC, says:

“The HSBC Brazil Manufacturing PMI index suggests that business activity improved modestly in August in what may have been a rebound following the disruptions caused by the FIFA World Cup.

The headline PMI index rose from 49.1 in July to 50.2 in August – the first above-50 reading since March, on the back of a sizeable rebound in production. However, new orders remain flat relative to the last month, suggesting that the outlook for the sector remains weak.”

The slowdown in eurozone manufacturing growth has helped to push the main European markets into the red, on a generally tedious trading session.

The Italian stock market is down almost 0.5%, after its factories reported an unwelcome drop in activity. France’s CAC index is in the red too, while the German and UK markets are hovering.

And the early rally on the Moscow stock market has evaporated after rumours emerged that EU leaders are considering banning Europeans from buying Russian sovereign debt.

The escalating dispute between Russia and Ukraine has also driven the ruble down to a fresh record low today.

A bout of early selling pushed the ruble down by around 1%, so that $1 was now worth 37.6 rubles.

The prospect of further economic sanctions being imposed on Russia within days also hit the country’s government bonds, although the Moscow stock market is up 0.8% today.

Over the weekend, German chancellor Angela Merkel said Europe would announce new sanctions within the week, unless Russia scaled back its intervention in Ukraine.

But rather than pulling back, Vladimir Putin suggested yesterday that discussions on “statehood” for the south-east regions of Ukraine should begin.

That has left the City watching events nervously again, as Marc Ostwald of ADM Investor Services explains:

Developments in the Ukraine will eminently also continue to cast a long shadow, and will obviously be the main topic for discussion at this week’s NATO Summit in the UK, with the weekend call from some US senators to “arm the Ukraine” and Putin’s call for an independent state in the Ukraine underlining alarming similarities to the antecedents to World War I.

Today’s weak manufacturing data, though, may dampen enthusiasm for new sanctions on Russia, as they are likely to hurt Europe’s economy too.

Rob Wood of Berenberg bank lays the blame for Britain’s factory slowdown firmly at the feet of Vladimir Putin.

Wood warns that the escalating tensions with Ukraine could hurt UK growth this year, and in 2015.

He writes:

Putin hits UK manufacturing.

The manufacturing PMI fell sharply to a 14 month low of 52.5, down from 55.4 in July and below consensus expectations. Russia’s escalation of the conflict in Ukraine has taken a toll on the internationally exposed manufacturing sector, and that effect could yet worsen further in the coming months given recent confidence drops in the more directly exposed core European economies. These developments pose a serious downside risk to growth this year and next.

Wood adds that UK consumers are not (yet) alarmed by geopolitics, with confidence buoyant last month.

So far then increased international uncertainty is probably affecting exports and investment plans the most, and could return the UK to the lopsided consumer led recovery seen last year.

David Noble, CEO of the Chartered Institute of Purchasing & Supply, agrees that this morning’s PMI report shows the UK factory sector is slowing.

“UK manufacturers were walking rather than running in August as the sector’s performance fell to a 14-month low and growth began to slow further. There is a distinct easing across the breadth of UK manufacturing, with growth in output, new orders and employment all reducing to a more pedestrian level.”

And Noble pins the blame on escalating tensions with Russia, and the weak euro economy:

“Growth in new export orders has slowed to a five- month low against a backdrop of market uncertainty and increasing geo-political tensions. To help plug the hole left by a faltering Eurozone, manufacturers are finding new markets in North America and the Middle East. Vitally however, manufacturers continue to anticipate growth for the foreseeable future, with SMEs in particular, still hiring to catch up with one and a half years of consecutive output and new order growth.

Noble also suggests that the new ‘status quo’ is that Britain’s manufacturing sector will stabilise at “a smaller proportion of GDP than before the recession”.

If he’s right, then the service sector would be even more dominant than before, despite talk of rebalancing the UK.

German factory sector has grown at its slowest rate in 11 months, with its manufacturing PMI dipping to 51.4 from 52.4 in July.

Markit economist Oliver Kolodseike warns that:

“Warning lights are flashing in Germany’s goods-producing sector,”

Shares in Tesco have fallen by over 1.5% this morning as the City gives new chief executive Dave Lewis a cautious reception.

Lewis has been rushed into the supermarket to take charge a month early, after last Friday’s nasty profits warning.

Over the weekend, it emerged that one of Tesco’s largest shareholders, Harris Associates, had halved its 3% stake.

Harris blamed “unclear management direction and incoherent strategy”, given Tesco will have both a new CEO and chief financial officer (having lured Alan Stewart from Marks & Spencer).

Onto Spain, and its factory sector has just recorded its ninth expansion in a row.

Growth has slowed, though, with Markit’s manufacturing PMI dropping to 52.8 from 53.9 in July. That’s still a fairly decent rate of expansion, given weakness in other parts of the eurozone, although slower than expected.

Encouragingly, firms reported that they took on more staff to deal with rising demand.

However, some companies also reported that they’d cut prices to secure sales in a number of cases. That suggests client demand remains fragile, says Andrew Harker of Markit.

Russia’s manufacturing sector has posted a small rise in activity last month, with its manufacturing PMI unchanged at 51.0.

President Putin’s recent policy of “import substitution” (encouraging firms to use domestic products rather than overseas goods) appears to be stimulating activity. New orders rose at the fastest pace in a year.

Here’s the key points:

Alexander Morozov, HSBC’s chief economist for Russia, is cautious:

The overall impact of import substitution on the Russian economy appears to be negative.

Indeed, large scale import substitution typically leads to higher costs and output prices growth, deducting from private consumption more than manufacturers add on the production side.

Good morning, and welcome to our rolling coverage of the financial markets, the world, economy, the eurozone and business.

We’re starting the week with a splurge of economic surveys of manufacturing sectors across the globe.

The latest Purchasing Managers Indexes from European countries for August will be closely watched, as the eurozone crisis has flared up again in recent weeks. These surveys indicate whether a sector expanded or shrank last month (yes, it’s September...).

Any reading of 50 points or more suggests growth, while sub-50 indicates a contraction.

Updated German growth data is being released this morning, confirming that its economy suffered a 0.2% drop in GDP in April-June. Analysts are combing through the details now.

We’ll be keeping tabs on Greece, ahead of the talks with its lenders which begin in Paris tomorrow.

But traders don’t expect much drama in the stock markets today, particularly as it’s the US Labor Day holiday.