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RECOVERY STRENGTHENS

Flood of new orders in China, Europe

London, September 23, 2013

A flood of new orders gave a boost to European and Chinese firms in September, according to a clutch of surveys which added to evidence that the global economy is healing.

Monday's upbeat purchasing managers' indexes, surveying thousands of companies across the globe, come ahead of figures for the US factory sector which are expected to show the world's largest economy is also continuing to recover.

"The global economy is gathering momentum ... growth is strengthening. Euro zone economies are gradually emerging into a recovery that is sustainable," said Philip Shaw at Investec.

"(And) it's fairly clear from its performance so far in 2013 that the U.S. recovery has gained some traction in the face of some fairly heavy fiscal challenges."

The U.S. Federal Reserve surprised markets last week by postponing a reduction of its massive stimulus programme, while downgrading its growth forecasts.

Conflicting views from policymakers of when the wind-down will come has left markets uneasy, while the threat of another fight on Capitol Hill over how much the United States can borrow loomed large.

The uncertainty emanating from Washington took the shine off a German election triumph for Angela Merkel which confirmed she would remain Europe's dominant leader as the continent tries to put its debt crisis to bed.

Still, the bloc should be able to take on its continuing challenges from a position of improving economic growth.

Survey firm Markit's Eurozone Flash Composite Purchasing Managers' Index (PMI) jumped to 52.1 from last month's 51.5, its highest since June 2011 and beating expectations for a reading of 51.9. A reading above 50 indicates growth.

The pace of expansion in the bloc's dominant services sector also beat all forecasts in a Reuters poll and the surveys suggested the recovery was becoming more broad-based.

Business at firms in Germany, Europe's largest economy, expanded at a faster pace than last month and in France, the second biggest, activity increased - albeit marginally - for the first time in 19 months.

FORWARD MARCH

Markit said the composite PMI, which surveys both manufacturing and service sector companies across the region and is seen as a good guide to economic growth, pointed to a 0.2 percent expansion this quarter, matching a Reuters poll taken earlier this month.

"Today's PMI figures support the view that the euro zone recovery is gradually becoming more entrenched and, as such, further reduce the odds that the ECB will follow up its forward guidance rhetoric with action," said Martin van Vliet at ING.

European Central Bank President Mario Draghi said earlier this month monetary policy would remain accommodative for as long as necessary, and that interest rates would remain at present or lower levels for an extended period of time.

However, some analysts had speculated the bank make take solid action to keep a lid on rising loan rates which could inhibit the recovery.

New business in the bloc increased again this month, boding well for October activity, and it was a similar story in China where new export orders jumped to a 10-month peak.

Encouragingly, domestic demand also showed resilience, with new orders rising to a five-month high.

The Chinese flash HSBC PMI climbed to 51.2 this month from August's 50.1, hitting a high not seen since March. A breakdown of the data showed ten of 11 sub-indices rose in September.

"Today's figure adds to the raft of recent better-than-expected Chinese data, indicating that the growth slowdown has already run its course and industrial activity is gaining traction," said Nikolaus Keis at UniCredit.

In July and August there were concerns that growth could be slower than the government's target of 7.5 percent, which would already be the slowest growth in more than two decades. Most analysts now say the 2013 target will be met. – Reuters




Tags: China | Europe | Euro zone | global markets |

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