Every country produces a Purchasing Managers Index for Manufacturing, which seeks to measure the health of the industrial sector. The index is a composite of the following indicators:

New Orders (seasonally adjusted) 20%

Production (seasonally adjusted) 20%

Employment (seasonally adjusted) 20%

Supplier Deliveries (seasonally adjusted) 20%

Inventories 20%

A PMI index over 50 represents growth or expansion within the manufacturing sector of the economy compared with the prior month. A reading under 50 represents contraction, and a reading at 50 indicates an equal balance between manufacturers reporting advances and declines in their business.

Now look at the following image to see what is happening to Global Manufacturing PMI as at June 2012:

The chart has turned red. Austerity in Europe has cut consumption, which in turn means that new orders in manufacturing are down, and if this continues it will hit employment in manufacturing too. And no-one appears to be immune from the contagion - this is affecting economies as far away as China, Korea, Japan and Taiwan.

The only greens are Denmark, Ireland, Israel and India. Denmark, Ireland and Israel are tiny economies, and India is probably protected by the fact that it is a relatively "closed" economy in that it doesn't rely on exports, rather it relies on domestic consumption to buy what their manufacturers produce.

For the more open economies of the world, which rely on trade with countries whose policies they don't control, it's going to be a very bumpy ride.