China Factories See Only Modest Pickup as Europe Stabilizes

Friday, 01 Feb 2013 07:21 AM

 

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China's vast factory sector managed only a shallow rebound at the start of 2013 and manufacturing in the eurozone remained weak, although there the worst may be over, a clutch of surveys suggested on Friday.

Markit's purchasing managers' indexes, which cover thousands of factories, pointed to a still slow global economy and data due later on Friday from the United States was expected to show a slight easing of growth in the world's biggest economy.

"The general sense, if you look at what it is in the pipeline, is that we will be getting a little bit more activity in the months to come," said Peter Dixon, economist at Commerzbank.

"The Chinese economy does appear to be gaining a bit of traction but not a huge amount (and) the eurozone numbers tell us the economy remains stuck in low gear."

The uneven nature of the recovery on factory floors was repeated in PMI releases across Asia and Europe. Surveys showed growth slowed in India and stalled in South Korea while Britain's expanded modestly.

The crisis-hit eurozone appears to be stabilizing, however. Factories in the common currency area had their best month in nearly a year as an improving outlook in Germany offered support amid signs the worst may be over for the troubled bloc.

Two separate versions of China's PMI pointed to rising factory output in the world's second-biggest economy, but the pace of the revival in activity in January was uneven.

"Chinese manufacturers received support from robust domestic demand, but were struck by the lackluster demand from its two main export destinations, Europe and the U.S.," said Nikolaus Keis, an economist at UniCredit.

The U.S. economy unexpectedly contracted in the fourth quarter, according to the advance estimate, although many analysts said there was no reason for panic given that consumer spending and business investment picked up.

The eurozone economy also probably contracted, by 0.4 percent at the end of last year, chalking up its third negative quarter, and will only stagnate in the current period, according to a Reuters poll published last month.

In January the eurozone PMI rose to an 11-month high of 47.9 from December's 46.1, pointing to a continued decline in activity but suggesting the downturn in manufacturing output - which fell for most of last year - has passed its nadir.

The output index, which feeds into a broader gauge of the economy, the composite PMI, due next Tuesday, rose to a 10-month high of 48.7 from December's 46.0. That was the biggest one-month jump in a year.

Financial markets reacted positively to the data with stocks extending gains and the euro rising broadly.

"While still in contraction territory, the manufacturing PMIs signal that upward momentum is spreading and the pace of contraction in eurozone output is slowing," said Evelyn Herrmann, European economist at BNP Paribas.

"This said, the story in the eurozone remains one of national divergence between the peripheries and the core, but as the divergence in recent survey indicators between France and Germany shows, now also spreads across core countries."

Markit said the gap between the German and French PMIs was the widest ever, leaving Germany, Europe's largest economy, as the region's shining light.

Germany's PMI staged its biggest one-month jump since the middle of 2009, to 49.8, showing stabilizing activity, while output expanded in January.

But in France, Europe's second-largest economy, the downturn deepened. Its PMI sank to a four-month low of 42.9.

PMIs for laggards Italy and Spain beat expectations as new export orders rose.

And British manufacturing expanded modestly in January as output grew at the fastest pace since September 2011, offering a small boost to an economy flirting with recession.

China's official PMI released by the government's statistics bureau eased to 50.4 from 50.6 in December, and below the Reuters consensus for a rise to 50.9. A similar PMI released by HSBC rose to a two-year high of 52.3.

The twin Chinese PMIs showed export orders either grew marginally or shrank as shoppers in the United States and Europe, the two biggest buyers of Chinese goods, cut back spending.

Domestic demand, on the other hand, was the main force behind China's gentle economic rebound, driving growth in new orders in January to multi-month highs.

Factories in Indonesia, the star emerging economy of the past year, said business shrank in January from December for the first time in eight months, while manufacturers in Taiwan reported the fastest growth in 10 months.

© 2014 Thomson/Reuters. All rights reserved.

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