London - Evidence is growing that the world economy is on the mend. Business surveys released yesterday showed better-than-expected growth in the euro zone and a rebound in China’s vast manufacturing sector.
Figures later in the day were similarly expected to confirm a continued strengthening of US factory output, probably clearing the way for the US Federal Reserve to start ending its immense bond-purchase programme next month.
Markets are struggling to adjust to the idea that the Fed will ease off its stimulus programme and pare back the $85 billion (R867bn) of bonds it has been snapping up every month.
But at its most basic level, the move would signal that the largest economy is firmly on the road to recovery.
“Tapering would be a sign that the Fed believes that the US economy is gaining some traction. It signals that the recovery is more solid,” said Philip Shaw, the chief economist at Investec. “There are signs that momentum is building, albeit slowly, in the pace of the euro zone recovery, and in China too.”
The world economy has struggled for momentum, hobbled by debt problems ravaging Europe while China grapples with waning foreign and domestic demand for its goods.
But Markit’s flash composite purchasing managers’ index (PMI) showed yesterday that business activity across the euro zone picked up this month at a faster pace than expected, bouncing to 51.7 from last month’s 50.5. Anything above 50 indicates expansion.
It was the highest reading since June 2011 and beat all predictions in a Reuters poll whose median forecast was for 50.9.
A flash composite PMI from Germany, the bloc’s largest economy, showed the growth rate was the fastest in seven months. In France, however, activity declined across the board.
A sister survey from China rose to a four-month high of 50.1 from July’s final reading of 47.7, although only barely passing the watershed 50 line.
The Chinese government has announced a series of targeted measures to support the economy, including scrapping some taxes for small firms, offering more help for ailing exporters and boosting investment in urban infrastructure and railways.
“It confirms that the economy has stabilised in the short term and downside risks for [the second half of the year] have declined,” Zhiwei Zhang, the China economist at Nomura in Hong Kong, said of the PMI.
The flash reading for US factories was expected to come in at 54 compared with July’s 53.7.
Growth data released last week showed support from Germany and France helped the euro zone escape from its longest recession on record in the second quarter, expanding at a better-than-expected but still modest 0.3 percent.
Markit said yesterday’s composite PMI, which surveys thousands of companies across the region and is used as an indicator of growth, pointed to a 0.2 percent to 0.3 percent economic expansion in the current quarter. – Reuters