Ross Finley and Ian Chua London and Sydney
Business activity slowed more than any forecaster expected in the euro zone this month while manufacturing in Asia’s top two economies hit the brakes, suggesting the global recovery path is less clear than policymakers are predicting.
The sudden drop in the euro zone flash composite Markit purchasing managers’ index (PMI) was driven by sharply slower growth in manufacturing orders in Germany and France, suggesting recent optimism about the euro zone might be overdone.
This marks the first major euro zone indicator that has disappointed all forecasts in quite some time, and comes just a month after the European Central Bank began purchasing government bonds to stimulate the economy.
The euro zone composite PMI fell to 53.5 points from 54, below both the 54.4 consensus and the lowest forecast in a poll. The 50-point mark separates growth and contraction.
Factory order growth slowed particularly in France, but also in major goods exporter and the euro zone’s biggest economy, Germany, suggesting more subdued activity ahead.
Both the flash manufacturing and services PMIs for France and Germany fell below the lowest forecast. For the euro zone, only the service PMI didn’t. “There is a clear risk that the composite PMI falls further as concerns about the situation in Greece and a possible euro exit intensify, raising the threat of a renewed economic slowdown in the euro zone,” Jessica Hinds, a European economist at Capital Economics, said. Other economists said that the smaller euro zone economies that were hit so hard by the crisis would probably report improvement in the months ahead.
“Country data so far available suggest that the periphery did comparatively well, with a good probability that the PMIs there may show resilience when they (are) published in early May,” Marco Valli, an economist at Unicredit, noted.
In Britain, whose economy has performed better than the euro zone over the past several years, retail sales fell unexpectedly in March, hit by the biggest slump in fuel sales in just under three years, separate data showed yesterday.
In China
, where the government has been engineering a rebalancing of its economy away from relying too much on exporting manufactured goods towards domestic spending, the flash PMI fell to a one-year low of 49.2 from 49.6.
Nomura analysts said the data underscored their call for two more 50 basis point cuts in the reserve requirement ratio for Chinese banks, as well as three more 25 basis point interest rate cuts over the remainder of the year.
Japan’s PMI also slid, to 49.7 from 50.3 in April, as new orders continued to shrink and manufacturing production fell for the first time since July 2014. – Reuters