Andy Bruce London
The euro zone economy is on course for its deepest downturn since early 2009, while Chinese factories returned to growth last month, bringing better news for the world economy, business surveys showed yesterday.
The latest purchasing managers indices (PMIs), which survey thousands of companies all over the world, at least suggested the global economic slowdown is not getting worse, despite the prolonged downturn in Europe.
The US index, which was released on Wednesday because of yesterday’s Thanksgiving holiday, showed manufacturing growing at its quickest pace in five months.
China’s vast manufacturing sector, meanwhile, expanded for the first time in 13 months.
Still, Europe looks set to remain the major drag on the world economy next year. The region re-entered recession in the third quarter, and this quarter seems unlikely to bring any respite.
While factory data in the euro zone also surpassed expectations, there was a worrying decline in its services sector, comprising the banks, hotels and restaurants that make up most of its economy.
PMI compiler Markit said the surveys were consistent with the euro zone economy shrinking 0.5 percent this quarter, which would be the worst reading since the first quarter of 2009, when the European economy hit its lowest ebb during the financial crisis.
“Looking ahead, we still think… the improvement in the global economy, as signalled by the further pick-up in the Chinese PMI, will provide some respite to the euro zone economy,” said Martin van Vliet, an economist from ING. But that could be some way off.
“The weak PMI out-turn for November is a major disappointment in light of the increases in the German and French PMI surveys, and suggests the recession on the euro zone’s periphery is gathering further pace.”
German business activity shrank for a seventh consecutive month in November, dragged down by services firms, while the French PMI signalled the risk of a sharp economic contraction taking place this quarter.
The peripheral countries of the euro zone, such as Spain, Portugal and Greece, have laboured under severe austerity policies that have deepened their recessions and sparked popular unrest.
A reminder that the euro zone’s sovereign debt crisis has further to run came on Wednesday, as international lenders failed for the second week to reach a deal for emergency aid for Greece.
Still, Spain managed to sell nearly e4 billion (R46bn) with ease at auction yesterday, kicking off its funding programme for a daunting 2013.
Markit’s flash euro zone services PMI fell to 45.7 this month, its lowest reading since July 2009 and failing to meet the expectations of economists, who thought it would hold at October’s 46.
It has been rooted below the 50 mark that divides growth and contraction for 10 months now, and Markit said it was consistent with a 0.5 percent economic contraction this quarter.
To a large extent, global growth next year will depend on China’s ability to overcome its downturn, after a disappointing 2012.
World share markets extended a week-long rally yesterday in response to the data.
Yesterday’s Chinese manufacturing PMI was a clear sign that the pace of economic growth has revived after seven consecutive quarters of slowdown, as it hit 50.4 in November, a 13-month high and above October’s 49.5.
“This reflects that conditions for smaller firms, especially exporters, are looking up,” said Li Wei, a Shanghai-based economist for Standard Chartered. “The consensus in the market is already for a small, gradual improvement.”
An uptick in key economic activity indicators in October, following encouraging signs in September, cemented the view of many analysts and investors that a rebound in the second-largest economy gathered momentum as it entered the fourth quarter, thanks to a raft of pro-growth policies rolled out by the government over recent months. – Reuters