Jonathan Cable and Xiaoyi Shao London and Beijing
BUSINESS growth in China and across Europe has slowed this month, surveys showed yesterday, providing more evidence that the world economy is stuttering and may need more monetary stimulus to keep it going.
Euro zone private business activity expanded slower than expected in August, despite widespread price-cutting. This is before the full effects of sanctions imposed on and by Russia over Ukraine are felt.
Meanwhile, China’s manufacturing activity hit a three-month low this month and a Reuters poll showed Japan’s economic recovery was likely to be modest despite a small acceleration in the factory sector.
Data due later from the US was expected to show a similar slowdown.
“If you take all these things together we are clearly looking at a global economy that does not have a huge amount of momentum behind it,” Peter Dixon at Commerzbank said.
Markit’s composite purchasing managers’ index (PMI) for the euro zone will provide gloomy reading for the European Central Bank (ECB) as it showed the region’s big economies are struggling.
Based on surveys of thousands of companies across the region and a good indicator of overall growth, the composite flash PMI fell to 52.8 from July’s 53.8, far short of expectations for a modest dip to 53.4.
Readings above 50 indicate expansion and Markit said the data pointed to third-quarter economic growth of 0.3 percent, matching predictions from a Reuters poll last week.
But there are challenges facing the economy now that it did not have to worry about a few months ago.
Europe and others in the West imposed economic sanctions on Moscow over the Kremlin’s support for rebels in eastern Ukraine, prompting a tit-for-tat response from Russia’s President Vladimir Putin.
“It is premature to start fretting about a new downturn,” Martin van Vliet at ING said. “That said, with geopolitical tensions increasingly posing a threat to the subdued and fragile upturn it is clearly premature to assume that the ECB’s easing work is fully done.”
Companies in Europe are starting to show signs of strain.
German sportswear firm Adidas cut its profit target due to the rouble’s fall and rising risks to Russian consumer sentiment. Brewer Heineken said its sales volume in Russia fell by a “low-double-digit” percentage.
The composite PMI for Germany – Russia’s biggest trade partner in the EU – fell to 54.9 from 55.7. For France, the euro zone’s second-largest economy, the composite PMI rose from 49.4 to the break-even mark at 50, meaning activity is neither expanding nor contracting.
In Britain, consumers have been the driver of an economic recovery that began last year. But retail sales rose last month at a weaker pace than expected.
Japan’s PMI showed factory activity accelerated in August as export and domestic demand increased, in another sign the economy is steadying after shrinking in the second quarter due to a sales tax increase.
But the Reuters Tankan survey indicated the economic recovery is likely to be modest, which could keep pressure on the central bank to act to sustain growth.
HSBC/Markit’s flash manufacturing PMI for China fell to 50.3 in August from July’s 18-month high of 51.7, badly missing a Reuters forecast of 51.5.
“The sharp drop in the PMI is not surprising given last month’s disappointing activity and lending data. That said, we are not expecting a rapid deterioration in economic momentum,” Julian Evans-Pritchard, the China economist at Capital Economics, wrote. – Reuters