LONDON/BEIJING: Signs of an economic revival in China have raised hopes that Beijing’s targeted measures to bolster growth are having an impact but a slowdown in the eurozone will increase expectations of policy easing there.
Chinese factory activity expanded at the fastest pace in five months in May but eurozone manufacturing growth slowed more than initially thought, fuelling expectations that the European Central Bank will ease policy this week.
“The Chinese numbers were fractionally higher. We are beginning to make some progress but it is consistent with this story that the Chinese economy is not going to grow as fast as it has in the past,” said Peter Dixon at Commerzbank. “The European numbers were in and around the ballpark. It’s not the kind of data the ECB is going to react to instantly but it is part of a bigger puzzle that says we need more growth in Europe.”
Markit’s final Manufacturing Purchasing Managers’ Index (PMI) for the eurozone slipped to a six-month low of 52.2 in May from April’s 53.4 as strong figures from Germany failed to offset a contraction in activity in France.
The final number was below the initial reading of 52.5 but held above the 50 mark that separates growth from contraction for the 11th straight month. A subindex measuring output sank to 54.3 from 56.5, weaker than the initial reading of 54.7. “The slowdown in eurozone manufacturing activity in May reinforces belief that the ECB will deliver a package of measures at its 5 June policy meeting,” said Howard Archer at IHS Global Insight.
To spur growth, boost lending and drive up inflation the ECB is widely expected to cut its deposit rate to below zero, reduce its main borrowing rate and launch a refinancing operation aimed at businesses when it meets on Thursday.
Inflation in the 18 nations using the euro is predicted to have held steady at just 0.7 percent in May, well within the ECB’s “danger zone” of below 1 percent and also below its preferred 2 percent ceiling.
German inflation looks set to have slowed in May from the 1.3 percent recorded in April. Germany is Europe’s largest economy and again supported the tepid overall growth but in France, the bloc’s second-largest, the PMI sank back below the 50 mark after just two months of expansion.
In non-euro using Britain manufacturing activity kept expanding at a rapid pace in May, suggesting the economic recovery has lost little of its shine this quarter.
The reassuring Chinese factory data and another record high for Wall Street lifted world stocks and commodities yesterday, although markets are waiting to see how far the ECB will go with policy easing plans.
China’s official PMI, which is geared towards bigger, state-owned firms, rose to 50.8 in May, from April’s 50.4, the National Bureau of Statistics said on Sunday, beating market expectations of 50.6.
“Recent pro-growth measures, which were stepped-up further last Friday, may have lent a helping hand here,” said Nikolaus Keis at UniCredit.
China’s manufacturing data bolstered market expectations that the world’s second-largest economy is regaining strength as the government’s pro-growth measures kick in.
Beijing stepped up policy fine-tuning in recent weeks and has unveiled a slew of measures this year to help shore up the economy, which dipped to an 18-month low in the first quarter and is on track to post the weakest annual showing in 24 years.
China’s cabinet announced new easing measures on Friday to help lower funding costs and reduce operating burdens for companies to give more support for the real economy, adding to moves that included hastening construction of railways and public housing.
In South Korea, Asia’s fourth-largest economy and one of the leading manufacturing and export powerhouses, the HSBC/Markit manufacturing gauge slid below 50 while trade data showed exports fell.