Asian factories power ahead, but Europe stutters

London and Tokyo - Manufacturing activity in Asian industrial powerhouses China and Japan gained pace last month, fuelled by improving demand at home, but euro zone growth faltered as main motor Germany slowed.

Business surveys published yesterday confirmed factory output expanded across Asia following months of decline in its two biggest economies, as stimulus packages from the authorities in Beijing and Tokyo begin to take effect.

China’s final HSBC/Markit purchasing managers’ index (PMI) for June rose to 50.7, slightly below a flash reading but above the 50 mark that separates growth from contraction for the first time in six months. The official China PMI, which is geared more towards bigger state-owned firms, hit a six-month high of 51.

“The Chinese numbers were good. The authorities are helping, they are supporting, they are guiding the economy in the direction they want it to go in,” Commerzbank economist Peter Dixon said.

In contrast, the new measures announced last month by the European Central Bank (ECB) to counter the threat of deflation and support growth by boosting lending to companies and households have yet to show any impact.

Markit’s final euro zone manufacturing PMI fell to a seven-month low of 51.8 last month from 52.2 in May.

“The ECB is going to be looking at these numbers in the coming months and hoping that we see a bit more of a pick-up. Let’s check in six month’s time if the ECB needs to do any more,” Dixon said.

Stock markets firmed after the Chinese data, which reinforced market views that the world’s second-largest economy is steadying thanks to stimulus from Beijing after growth dipped to an 18-month low of 7.4 percent in the first quarter.

Those measures include reduced reserve requirements for some banks to encourage more lending, quicker fiscal disbursements and accelerated construction of railways and public housing.

A downturn in the property market is clouding the outlook, however, and economists expect Beijing to stand ready to ease fiscal and monetary policy further to counter any spillover.

In Japan, central bank and PMI surveys painted a similar picture of improving factory activity, supported by continued hefty central bank money injections and government spending.

Japan’s PMI topped 50 points for the first time in three months but with an April sales tax rise still acting as a drag, the Bank of Japan’s Tankan gauge of business optimism dipped in the second quarter. Still, firms were optimistic about the outlook, declaring readiness to boost capital investment and output.

“It was still a good result. The Tankan result supports the Bank of Japan’s upbeat view on the economy,” Takuji Aida at Société Générale said.

Indonesian factory activity grew at the fastest pace on record and in India, the continent’s third-largest economy, activity hit a four-month high.

Markets also looked ahead to US PMI data to confirm that the biggest economy has finally put its weather-affected start to the year firmly behind it.

British factories followed Asia’s lead, increasing activity at the fastest rate in seven months while creating new jobs at the briskest pace in more than three years.

Euro zone factory activity growth eased as a contraction in France deepened. Germany was the driving force, helped by a resurgence in the bloc’s peripheral countries, although its PMI dipped due to public holidays.

“The slowdown will put pressure on the ECB to do more to prevent the recovery from stalling,” Chris Williamson, Markit’s chief economist, said ahead of tomorrow’s central bank policy meeting. – Reuters


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