London and Beijing - China’s vast factory sector has contracted again this month and the expected acceleration in euro zone business activity failed to materialise, highlighting the fragile state of the global economy.
A purchasing managers’ index (PMI) survey out of China reinforced concerns of a minor slowdown in the second-biggest economy while a sister index underscored an ongoing divergence between France, the euro zone’s second-biggest economy, and the rest of the 18-member currency union.
“The euro zone is most at risk of a global demand shock given the chills emanating from China’s deleveraging across emerging markets, North America’s current ‘frozen’ growth patch and the fact that the US is exporting less of its growth to the rest of the world,” Lena Komileva at G+ Economics said.
Figures due later yesterday from the US were expected to show a marked easing of the pace of growth in its manufacturing industry.
The flash Chinese Markit/HSBC PMI fell to a seven-month low of 48.3 in February from last month’s 49.5, although some analysts cautioned against reading too much into the report, noting it was a shorter-than-usual snapshot. Anything below 50 indicates a contraction.
After the earlier disappointing surveys from China the yen, which often gains in line with investors’ aversion to risk, got a leg up against its rivals but markets were little moved after European figures.
Markit’s euro zone composite PMI, which is based on surveys of thousands of companies and is seen as a good guide to growth, dipped to 52.7, just below January’s 31-month high of 52.9.
The overall index masked news that France is lagging far behind its European peers, pouring cold water on hopes for a recovery gathering momentum in the country after it expanded 0.3 percent in the fourth quarter of last year.
“All in all, it remains to be seen if the first quarter of 2014 will confirm the beginning of the French recovery or of a longer period of stagnation,” Julien Manceaux at ING said.
Still, Markit said the latest data pointed to 0.5 percent economic growth in the bloc this quarter, stronger than the 0.3 percent predicted in a Reuters poll published last week.
But while the recovery across the euro zone appears fairly broad-based, with growth across private industry near two-and-a-half-year highs, companies cut prices again to drum up trade, which may further stoke fears of deflation in the bloc.
A composite prices charged index showed firms have cut prices every month for nearly two years, suggesting inflation is not going up any time soon. Inflation dropped unexpectedly to just 0.7 percent across the euro zone last month. – Reuters