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GLOBAL ECONOMY

Europe's factories grow, China's stabilise

London, August 1, 2013

By Andy Bruce
Europe's factories delivered more signs last month the region is gradually leaving recession behind, according to business surveys that also eased immediate fears over the health of China's economy.
 
Thursday's purchasing managers indexes (PMIs), surveying thousands of manufacturers worldwide, showed output in British factories surged in July, and industrial activity in the euro zone rose for the first time in two years.
 
A report on the US due later is expected to show a modest rate of growth in factories after the Federal Reserve said on Wednesday the world's biggest economy was recovering but would still need support.
 
Overall, the European and Chinese PMIs allayed worries the global economy's mid-year lull will deepen from here, although that view could hinge on how many jobs the US economy - still the global driver - added last month, with the figures due on Friday.
 
"We're seeing different trends in different parts of the world, which are to a large extent offsetting each other," said Andrew Kenningham, senior global economist at Capital Economics in London.
 
"The euro zone has clearly improved ... over the last six months or so, and the survey data in July was pointing to more or less flat GDP and possibly some growth in the third quarter."
 
"And of course the UK has clearly improved significantly."
 
The surveys backed a consensus expecting the European Central Bank and Bank of England to hold policy unchanged later on Thursday, although the latter surprised investors last month with a warning they were pricing in an interest rate hike too soon.
 
Markit's UK manufacturing PMI jumped to 54.6 in July from 52.9 in June, trumping even the most optimistic forecast in a Reuters poll of economists and triggering a rise in sterling.
 
Readings above 50 signify growth.
 
Brian Hilliard, economist at Societe Generale, noted the fastest rises in new orders and output since February 2011, at 58.2 and 58.0 respectively.
 
"Just amazing. What's the need for (Mark) Carney to do anything?" he said, referring to the new Bank of England Governor. "It's shaping up for Q3 to be stronger than Q2."
 
Markit's Eurozone manufacturing PMI signalled marginal growth among factories for the first time in two years, also rising to 50.3 in July from 48.8.
 
It follows a string of promising economic data out of the euro zone, which has wallowed in recession since the end of 2011.
 
"Manufacturing output rose again in Germany, Italy, the Netherlands and Ireland during July, while there were welcome returns to growth for France and Austria," said Rob Dobson, senior economist at PMI compiler Markit.
 
There were signs the downturns in the euro zone's most vulnerable economies, like Spain and Greece, are easing too.
 
HOPE IN CHINA?
 
In China, the official government factory PMI was a little stronger than expected in July, offering a rare bright spot in an otherwise sluggish Asian manufacturing sector.
 
Although the China PMI surprised and gave a boost to regional share prices and commodities, it also signalled only a modest pace of growth. A rival report from HSBC was much more gloomy, showing factory activity fell to its lowest in nearly a year.
 
Elsewhere in Asia, other PMI reports suggested factory output and new orders falling in July in India, South Korea and Taiwan. In Indonesia, a PMI report signalled that output and new orders were holding at similar levels to June.
 
China's official PMI rose to 50.3 in July, contrary to expectations that it would fall to 49.9 from 50.1 in June.
 
"I think the official report does offer a slim hope that the economy is stabilising at least, but it is still a bit early to conclude that things have turned around decisively," Wei Yao, China economist at Societe Generale in Hong Kong.
 
The HSBC PMI, compiled by Markit, fell to 47.7 in July, the weakest reading since August 2012, from 48.2 in June. The latest reading matched a preliminary PMI released last week
 
That focuses more on smaller and private sector companies than the official government PMI.
 
"We can see the small companies are more affected by the liquidity tension apparently," said Yao. - Reuters



Tags: China | Europe | Recession | factories |

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