* Escalating crisis in Ukraine, patchy Chinese recovery
* China's official PMI for Aug 51.1, HSBC PMI slows to 50.2
* Euro zone factory PMI falls to 13-month low
* Barely raised euro zone factory prices highlight deflation
By Sumanta Dey and Wayne Cole
BANGALORE/SYDNEY, Sept 1 Factory activity in
Europe and Asia cooled in August after a strong July, as new
orders dwindled in the face of escalating tensions in Ukraine
and a patchy recovery in China, purchasing managers indexes
Despite euro zone manufacturers barely raising their prices,
growth in the region slowed slightly more than initially
thought, and activity in China's vast factory sector slackened
on weak foreign and domestic demand, stoking speculation that
further policy stimulus would be needed.
"A concerted slowdown in the China, euro zone and UK
manufacturing PMIs as the second quarter gets under way raises
alarm bells about global demand conditions," said Lena Komileva,
chief economist at G+ Economics in London.
"This raises serious questions about the ability of major
economies such as the U.S. and the UK, to weather higher
interest rates, or in the case of the euro zone to withstand
deflationary pressures without further stimulus."
Euro zone factories stumbled with the final August PMI at
50.7, the lowest in over a year, as new orders slowed amidst
rising tensions over Ukraine that have triggered sanctions from
the West and countermeasures from Russia.
Still, that was the 14th month the index has been above the
50 line that separates growth from contraction.
The factory PMI for Germany, Russia's biggest trade partner
in the European Union, fell to an 11-month low while in the
bloc's second-largest economy France it dropped further below
the breakeven mark.
The drop in euro zone manufacturing activity came despite
factories barely increasing prices and, with inflation dropping
to a fresh five year low of 0.3 percent in August, that raises
risks of the region slipping into deflation.
Both data come just days ahead of a European Central Bank
meeting. Although fresh policy action is thought unlikely, the
slowdown in growth coupled with rising risks of deflation will
increase the pressure for more stimulus.
"It reinforces the case for the ECB to keep policy easy. The
ECB will likely maintain a dovish tone at this meeting without
any action but we expect some details on its plans to implement
an asset purchase programme in the coming months," said Philip
Shaw, economist at Investec.
In contrast, the Bank of England and U.S. Federal Reserve
are widely expected to begin raising interest rates next year
with Britain tipped by analysts as the first mover.
But slowing economic activity, smaller price rises and weak
pay growth mean those plans are not cast in stone.
The latest CIPS/Markit data for Britain showed factory
activity grew at its slowest pace in 14 months despite muted
"The survey provided a worrying sign that the manufacturing
sector's recovery is struggling to maintain its momentum," wrote
Paul Hollingsworth, UK economist at Capital Economics.
"In addition, the output balance, which has a fairly good
relationship with the official measure of manufacturing output,
Britain's main manufacturing trade body on Monday cut its
growth forecast for 2014 after its members reported a big drop
in export orders.
A survey due on Tuesday is likely to show U.S. factory
activity also cooled in August but much will also depend on jobs
data due on Friday. U.S. employers are expected to have added
220,000 new jobs in August, 11,000 more than in July.
MIXED ASIAN BAG
China's official manufacturing PMI fell from a 27-month high
to 51.1 in August, while the HSBC/Markit PMI eased to 50.2.
The fall in overall activity was also driven by job cuts for
the 24th consecutive month and highlights the still patchy
recovery, increasing speculation of further policy easing.
The People's Bank of China has so far refrained from cutting
interest rates, preferring instead to ease liquidity for some
banks to free funds for lending. Beijing in turn has tried to
ease conditions in the property market.
But China's housing market, which accounts for 15 percent of
output, is at the start of what many fear will be a punishing
downturn. Future robust economic growth will depend on that
downturn being contained.
There were some bright spots in Asia, however.
In India, factory growth eased a touch but chalked up its
tenth month of expansion. Last week data showed economic growth
quickened to an annual 5.7 percent in the second quarter.
Taiwan's manufacturers reported the strongest expansion in
new orders in over three-and-a-half years, much of it for
export, lifting the PMI to 56.1 in August.
But South Korea suffered as its exports to China fell in
August for a fourth month running, the longest such losing
streak in two years, and Indonesia's PMI survey showed activity
contracted for the first time in a year.
(Additional reporting by Jonathan Cable in London; Koh Gui Qing
in Beijing and Deepti Govind in Bangalore; Editing by Ross
Finley and John Stonestreet)