BANGALORE/SYDNEY Aug 1 Manufacturing activity
in China and most of Asia gathered pace in July as firms
responded to burgeoning new orders by raising output, hinting at
a revival in global trade, although euro zone factories barely
managed to chug along.
China's official manufacturing purchasing managers' index
(PMI) rose to 51.7 in July - the strongest since April 2012 -
beating expectations for 51.4 and up from 51 in June. The
HSBC/Markit measure also rose to 51.7, an 18-month peak.
A comparable survey in the euro zone disappointed, however,
as factories there grew less than expected, with the PMI at
51.8, matching June's reading and below a flash estimate. A
reading above 50 separates growth from contraction.
While the China PMI suggests Beijing's stimulus measures
were gaining traction in the world's second largest economy, the
lull in euro zone factories and firms' inability to increase
prices underscored the fragility of Europe's recovery.
"There are clear disparities between Europe and Asia in the
PMIs but ... exports should pick up reasonably well globally and
the euro zone's largest economy, Germany, should benefit from
it," Commerzbank economist Peter Dixon said.
The latest CIPS/Markit data for Britain showed the weakest
factory growth in a year along with modest price rises. The PMI
fell sharply to 55.4 in July from 57.2 in June. Markit said the
index was still well above its long-term average.
The lull in continental Europe comes despite data this week
showing U.S. economic growth rebounded in April-June after a
winter slump. A survey due later on Friday is likely to show
U.S. factory activity expanding at its fastest pace this year.
The Institute for Supply Management (ISM) index is expected
to rise to 56.0 from 55.3 in June, according to a Reuters poll.
Much will also depend on U.S. jobs data due on Friday. U.S.
employers are expected to have added 233,000 new jobs in July,
fewer than the 288,000 created in June, but still considered a
healthy rate, required for faster economic growth.
That should keep the Federal Reserve on track to wean the
economy off stimulus by October and begin raising interest rates
from record lows in the first half of next year.
SWELLING ASIAN ORDER BOOKS
Major Asian economies that have long thrived on exports to
the West slowed in recent years as faltering economic recoveries
in the United States, Britain and other industrialised nations
hurt demand for their products.
But with export orders flooding factories in China, India
and Taiwan, according to the latest PMI reports, and with
brighter signs of an economic revival in the United States and
Britain, that is set to change.
Analysts said the strong China numbers point to better
economic growth than the 7.5 percent seen in the second quarter.
"Taken literally, these PMIs signal an exceptionally strong
start for third-quarter growth in China," said Annette Beacher,
head of Asia-Pacific research at TD Securities in Singapore.
India's factory activity expanded at its fastest pace in 17
months in July, driven by a surge in new orders and output,
while Taiwanese manufacturers also reported a robust improvement
in overall business conditions on rising export demand.
Input prices rose sharply for Indian factories, however,
indicating inflation may remain elevated as firms seek to pass
on the higher costs to consumers, limiting chances of a rate cut
from the Reserve Bank of India at next week's meeting.
South Korea also reported exports to the United States
expanded by over 19 percent in July, although subdued inflation
and weakness in shipments to China kept alive the prospect of an
interest rate cut at this month's central bank policy review.
BUT NO PRICING POWER IN EURO ZONE
Worryingly for euro zone policymakers, however, still-feeble
growth in output and new business meant factories in the
18-country bloc were barely able to increase prices in July.
The latest PMI data came a day after news that euro zone
inflation dropped to 0.4 percent last month, its lowest since
the depths of the financial crisis nearly five years ago.
The European Central Bank announced a raft of measures in
June to counter the threat of deflation, including cutting the
deposit rate below zero to compel banks to lend. It will also
offer hundreds of billions of euros more of long-term cash to
banks later this year, tied to lending to businesses.
But the rising deflationary risks suggested by the survey
could hamper its efforts to spur growth, if companies defer
spending on expectations that prices may fall further.
(Additional reporting by Wayne Cole in Sydney, Koh Gui Qing in
Beijing, Jonathan Cable in London; Editing by Catherine Evans)