By Jonathan Cable and Kevin Yao
LONDON/BEIJING, March 1 Prospects for a
sustained global economic recovery darkened on Thursday as
sputtering factory activity in Europe overshadowed more upbeat
data from Asia, at a time when central banks are running out of
policy options and reluctant to do more.
But news that U.S. jobless claims hovered near a four-year
low was a reminder that the world's largest economy, where the
global financial crisis began in 2008, is on a more solid and
possibly more self-sustaining recovery path.
Data also showed that Americans held back with their
personal expenditure in January, showing a smaller rise than
expected against a backdrop of mild inflation pressure.
In Europe, factory activity at best stagnated, and in Spain
and Greece it contracted sharply, according to the latest
purchasing managers' indexes. Chinese and Indian manufacturing
is growing, but at a more modest pace than in the recent past.
The data comes just a day after the European Central Bank
pumped 530 billion euros of cash into the banking system, likely
its last such salvo in a battle to bring down yields on
government bond and stave off a credit crunch.
But despite another bailout for Greece and success in
lowering borrowing costs - Spain sold 4.5 billion of government
bonds on Thursday at lower yields than previous sales - Europe
is still casting a dark shadow over the world economy.
"Clearly the euro zone crisis is having an impact upon
global activity, and that is going to be a theme for some time
to come," said Peter Dixon at Commerzbank.
What is most troublesome is that several countries in the
euro zone periphery such as Greece, Spain, and to a lesser
extent Italy, are in recession, while the strongest economies -
Germany and France - are barely growing.
Markit's Eurozone Manufacturing Purchasing Managers' Index
(PMI) rose to 49.0 last month from January's 48.8, in line with
a flash reading. But it has now been below the 50 mark that
divides growth from contraction since July.
It now looks all but certain the 17-member euro zone is
stuck in a mild recession. Even Germany, a top world exporter of
manufactured goods, is struggling.
"In order to confirm the view of a more robust pick-up later
in the year we would need to see much stronger numbers in the
months ahead," Dixon said.
A Reuters poll on Thursday predicted that both the ECB and
the Bank of England will hold off on further monetary policy
easing. That is a reversal from recent surveys which had the ECB
cutting rates one more time and the BoE ramping up its bond
In the United States, Federal Reserve Chairman Ben Bernanke
poured cold water on Wednesday on the notion recent upbeat signs
herald a stronger recovery. But at the same time, more QE there
is also looking less likely.
Comparable purchasing managers' data due at 1500 GMT are
expected to show manufacturers in the U.S., the world's biggest
economy, increased production moderately.
Greece's factories are in freefall and its economic data
point to depression rather than recession.
Its manufacturing sector shrank at the fastest pace in at
least 13 years just as the country is set to be hit by another
wave of austerity cuts in return for the latest bailout cash.
In Spain, where the government is struggling to slash its
public deficit, factories shed jobs at the fastest rate in more
than two years, worsening employment prospects in a country
where already more than one-in-five is out of work.
Unemployment in the bloc rose to a euro-era high of 10.7
percent in January, official data showed earlier on Thursday.
The economic picture remained slightly better in Britain
than continental Europe.
But its manufacturing sector grew at a slower pace than
expected in February, further evidence that the economy is
vulnerable, particularly to any more trouble in the euro zone,
its main trading partner.
ASIA ENGINE STILL RUNNING
Asia is slowing but remains the growth engine of the world
economy. Its major central banks could also cut interest rates
if needed to cushion any further slowdown.
New factory orders for Asia's manufacturing powerhouses
perked up in February, easing some concerns about the global
economic slowdown, with China's factories growing more than
The surveys, the first leads on factory activity in the
region, offered tentative signs of a recovery from the slump in
the final months of 2011 caused by faltering external demand and
fragile business and consumer sentiment.
But the economic picture was far from complete.
"February numbers should be taken with a pinch of salt since
they may be inflated by 'payback' production activity after the
Chinese Lunar New Year not fully captured by seasonal
adjustments," said Nikolaus Keis at UniCredit.
"Nevertheless, taken together, PMI figures indicate that
China's manufacturing activity at least stabilized in February."
India's manufacturing expansion eased back from its
strongest pace in eight months for a PMI of 56.6 in February
compared with 57.5 in January. However, new orders touched a
Like in many countries though, official Indian data doesn't
paint such a rosy picture.
Overall economic growth slipped to its slowest pace in
nearly three years in the final quarter of 2011, with
manufacturing and mining at the fore of the slowdown, figures
showed on Wednesday.