World economic recovery: still fragile, but on track

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Bullsandbears REUTERS A bull and a bear styrofoam figurine.

London/Beijing - European factories experienced robust growth in August and China bounced back on rising demand, lifting prospects for broad-based recovery on the back of the US revival.

India, at the epicentre of current emerging market turmoil, saw its manufacturing activity shrink for the first time in 4-1/2 years, however. Lacklustre performances in France and in some other Asian manufacturers also highlighted the fragility of the rebound.

The US Institute of Supply Management is set to publish its bellwether PMI for US factories on Tuesday. A Reuters poll showed the index is expected to slip to 54 from July's 55.4.

The data comes as markets are bracing for the US Federal Reserve to begin winding down its huge bond-buying programme, itself a signal the central bank of the world's largest economy thinks the recovery is on track.

That prospect, however, is causing concern in some of the emerging economies that have most benefitted from the US stimulus.

“The bag is getting more full with better numbers. The pick-up in the Chinese PMI is helpful, that was the one that was worrying, that's the big one in terms of sentiment, with a bit of help from the European numbers,” said Victoria Clarke at Investec.

Factory activity in the euro zone rose at its fastest pace in over two years while China's manufacturing sector grew in August for the first time in four months, according to business surveys published on Monday.

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) jumped to 51.4 from 50.3 in July - the first month the index had been above the 50 line that signifies expansion since February 2012.

The reading pipped an earlier preliminary figure of 51.3.

But while those surveys showed the euro zone zone's nascent recovery may be taking hold, activity in France - the bloc's second biggest economy - declined for the 18th month.

“In the end France should be dragged by the rest of the euro area but it certainly seems to be lagging. It's not a major worry but we would expect it to follow suit,” Clarke said.

Highlighting the fragility of the recovery, the PMI showed European manufacturers reduced headcount for the 19th month in August and at a sharper rate than in July.

Outside the currency bloc the news was better - British manufacturing accelerated again in August and new orders and output rose at their fastest pace in nearly 20 years, boosting hopes that the country's own recovery is broadening.

Chinese factories expanded for the first time in four months. Data on Friday, meanwhile, showed Japanese manufacturers also posted stronger growth. A PMI survey showed activity grew in August for the sixth consecutive month.

In South Korea, Monday's local PMI edged up but held well under the 50-mark although other heavyweight Asian electronic makers such as Taiwan fared better.

INDIAN STUMBLE

The final Markit/HSBC China PMI climbed to 50.1 for August and a similar official survey released on Sunday showed sector growth hit a 16-month high last month.

The two reports stirred hopes that the world's second-largest economy may finally be steadying after slowing down in 12 of the past 14 quarters, cheering Asian investors who pushed regional stock markets to a two-week high.

“We are definitely stabilising, but it's going to be a pretty weak to flat recovery,” said Stephen Green, an economist at Standard Chartered, referring to China's vast factory sector.

But relief that China may have dodged a sharp slowdown was moderated by investor apprehension that times remain tough, especially as other Asian factories foundered, especially in India, Asia's third-largest economy.

Government data on Friday showed India's economic growth in the April-to-June quarter slowed to 4.4 percent, the weakest pace since 2009, as both mining and manufacturing shrank.

Indian economic growth has nearly halved in the last two years to a decade-low rate of 5 percent in the fiscal year that ended in March, and a majority of the economists surveyed by Reuters last week expect this year to be worse.

Weighed down by a record current account deficit, the Indian rupee has lost around a fifth of its value since the US Fed hinted in May it was going to start paring back its stimulus, sparking capital outflows from many emerging markets. - Reuters


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