Jonathan Cable and Adam Rose London and Beijing
Major economies in Asia and Europe finished the first quarter on a weaker note, with key manufacturing surveys fuelling expectations that policymakers may be forced to act in coming months to prop up faltering growth.
Factories across Europe eased back on the throttle last month while China’s vast manufacturing industry contracted for a third month, surveys showed, although a similar poll due later yesterday from the US was expected to show an acceleration.
“The PMIs [purchasing managers’ indices] have given a steer on the Chinese economy for a while and it is looking like the People’s Bank of China will take some action,” Philip Shaw at Investec said yesterday.
“In the euro area they are tending to confirm that the recovery is taking place gradually, but that there is a broadening of the recovery.”
Output again rose across the board in the euro zone, suggesting its recovery is becoming entrenched, but Markit’s PMI also revealed that factories were once again cutting prices.
The bloc’s final manufacturing PMI for March came in at 53, matching an earlier flash reading but below February’s 53.2, while the output price sub-index dropped below the key 50 mark that separates growth from contraction for the first time since August last year.
Euro zone inflation fell to just 0.5 percent last month, its lowest since November 2009 and well below the European Central Bank (ECB) target of just less than 2 percent.
The ECB is expected to keep monetary policy unchanged tomorrow despite calls for it to act to support growth.
Olli Rehn, the EU’s top economic official, added to that pressure yesterday, saying that prolonged low inflation would make it harder to correct imbalances in the euro zone.
Unemployment in the bloc declined slightly in February, although the jobless rate remained at 11.9 percent, official European statistics office Eurostat said yesterday.
Growth in British manufacturing unexpectedly eased last month to its slowest pace in eight months and prices paid by factories tumbled, giving the Bank of England scant reason to adjust its loose policy stance.
World stocks got off to a solid second-quarter start yesterday after reassuring noises from Federal Reserve chairwoman Janet Yellen, while major currencies and bonds looked set for more cautious jockeying ahead of the ECB meeting and US jobs data.
In China, the final Markit and HSBC PMI gauge of factory activity fell to an eight-month low of 48 last month. It has remained below the 50 level since January.
The official survey, which is geared towards bigger, state-owned firms, showed a marginal increase to 50.3 from 50.2. But economists warned that given seasonal patterns this was a sign of further weakness rather than a sign of improvement in the second-biggest economy.
Investors are betting China will try to arrest the loss of momentum after what has shaped up to be its worst quarter in five years.
Last week Premier Li Keqiang said that Beijing had the necessary policies in place and would push ahead with its infrastructure investment, after recent weak economic data and mounting signs of financial risks clouded the outlook for the nation.
In Japan, the closely watched central bank Tankan survey showed business sentiment barely improved in the three months to March and was set to sour this quarter following an increase in sales tax that took effect yesterday.
The tax increase is taking a bigger toll on corporate sentiment than the previous hike in 1997, highlighting the daunting challenge facing Prime Minister Shinzo Abe in his quest to shore up government revenues while rescuing the country from years of deflationary stagnation.
Big manufacturers and non-manufacturers in Japan expect conditions to worsen in the three months ahead, keeping alive expectations the Bank of Japan (BoJ) will boost its massive monetary stimulus to sustain recovery in the economy.
“The chance of further BoJ easing may have risen a bit but the Tankan alone won’t be a trigger for action. The bank will probably wait to see more evidence on how much the tax hike actually hurts demand,” said Yoshiki Shinke, the chief economist at Dai-ichi Life Research Institute.
Factory PMI surveys for Asia’s third- and fifth-largest economies, India and Indonesia, also came in softer, with India’s index still in growth territory, but Indonesia’s hitting a seven-month low. – Reuters