November 2, 2009 / 7:47 AM / 10 years ago

GLOBAL ECONOMY-Global factory output expands, points to recovery

* Euro zone manufacturing expands for first time in 17 mths

* British factory sector grows at fastest rate in two years

* China PMI hits 18-month high in October

* Growth in India, South Korea continues but at slower pace

By Jonathan Cable and Alan Wheatley

LONDON/BEIJING, Nov 2 (Reuters) - Factory activity in the euro zone expanded for the first time in 17 months in October and also picked up in Britain and China, suggesting global economic recovery is underway, surveys showed on Monday.

The upbeat data comes ahead of policy meetings of the Federal Reserve, European Central Bank and Bank of England this week with policymakers facing a mass of conflicting signals.

The 16-nation euro zone saw its manufacturing sector expanding at its fastest rate since April 2008 while in the UK the sector grew at its fastest pace in two years.

Parallel figures due later on Monday are expected to show the United States’ manufacturing sector also continued to grow last month.

The Fed, ECB and BoE have all slashed interest rates to historic lows and pumped liquidity into their economies in a bid to temper recession.

Economists have begin to turn their attention to the central banks’ exit strategies but while the euro zone economy is seen growing again in the third quarter Britain’s contracted unexpectedly, despite a raft of upbeat data, including the PMIs.

Presenting the same problem from the opposite direction, U.S. GDP figures last week were stronger than forecast but other economic evidence from there has been decidedly patchy.

“I think the story is there are major survey data problems and quite how policymakers make sense of this I don’t know,” said Ross Walker at RBS.

Markit’s Eurozone Purchasing Managers Index jumped to 50.7 in October from 49.3 in September, but there was divergence among its big four nations with Germany and France growing while Spain and Italy continued to see weakness. [ID:nL2308693]

A reading above 50 means business activity expanded.

“Today’s data suggest that the recovery in the euro area is starting to gather pace ... (but) we remain cautious about the economic outlook in the months ahead,” said Colin Ellis at Daiwa Securities.

In the UK the CIPS/Markit PMI leapt to 53.7, smashing expectations for 50.0 and way above even the highest forecast from 30 analysts for 51.0. [ID:nL2579102]

The figures suggest Britain’s economy made a strong start to the final quarter of this year, having suffered its longest recession on record.

The Bank of England will decide on Thursday whether to increase its 175 billion pound quantitative easing programme which is pumping new money into the economy.

For a graphic comparing PMIs click on:



Activity of China’s manufacturers expanded for the seventh month running, boosted by a pick up in employment and export order growth, according to a survey compiled by British research firm Markit and published by HSBC. [ID:nPEK121771]

HSBC said its China Purchasing Managers’ Index rose to an 18-month high in October of 55.4 from 55.0 in September.

“We believe the ongoing strong recovery in the manufacturing sector should gain further momentum in the coming months, hence underpinning strong economic growth in the fourth quarter,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement.

Many economists believe China will drive the global rebound after the world’s third-largest economy grew at an annual 8.9 percent rate in the third quarter on the back of a big government stimulus.

India’s manufacturing industry also expanded for the seventh month while South Korea, Asia’s fourth largest economy, posted an eight consecutive month of growth although the pace slowed in both countries.

India’s PMI eased a touch to 54.5 last month from 55 in September but it still pointed to a robust growth in industrial production of around 8-10 percent on an annual basis, said HSBC senior Asian economist Robert Prior-Wandesforde. [ID:nBMA006322]

“If falls in the output and total new orders indices were a touch disappointing, a rise in the employment index back above 50.0 and a decent improvement in the new export orders index to its highest level since August last year offered welcome news.” (Editing by Mike Peacock)

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