Jonathan Cable and Stanley White London and Tokyo
Manufacturing in China and Japan returned to growth in June after months of decline, but an unexpectedly sharp fall in French business activity dragged on the wider euro zone, surveys showed yesterday.
Beijing’s targeted stimulus measures and Japan’s improving labour market supported domestic demand in Asia’s dominant economies but the gap between the euro zone’s big two remains wide.
German business activity expanding robustly, albeit at a slower pace than last month, while France’s private sector shrank at the fastest rate in four months.
Markit’s composite purchasing managers’ index (PMI), based on surveys of thousands of companies across the euro zone, fell to 52.8 from May’s 53.5. That was well below the consensus for 53.5 in a Reuters survey, matching the lowest forecast polled.
Readings above 50 indicate expansion. Markit said that with a robust recovery taking place in some euro zone periphery countries, the data still pointed to second-quarter economic growth of 0.4 percent.
“The recovery has not gained as much traction as people had hoped. We’ve been highlighting the divergence between France and Germany for some time – it’s not just in the PMIs. It’s definitely a concern,” said Jessica Hinds at Capital Economics.
Germany was again the driving force, although its composite PMI eased to 54.2 from 55.6. The French index slumped to 48 from 49.3, its lowest reading since February.
“Déjà vu with the French numbers: worse than expected. Our own and the Banque de France’s forecast of gross domestic product expanding by 0.2 percent in the second quarter looks optimistic now,” said Holger Sandte at Nordea.
Also somewhat worrying for the European Central Bank (ECB) was that a composite PMI sub-index measuring output prices held below the 50 mark for the 27th month, coming in at 49.7 as firms kept cutting prices despite soaring input costs.
Inflation slowed to 0.5 percent in May, prompting the ECB to cut interest rates to record lows and to offer banks new long-term loans to help boost lending to euro zone companies.
“The further weakening of the PMI vindicates the ECB’s recent decision to implement further monetary easing and will keep fears of a Japanification of Europe firmly alive,” said Martin van Vliet at ING.
The stakes are high for China, which may need more stimulus to offset a cooling housing market and avoid a hard landing. Japan’s weak exports also took the gloss off the government’s efforts to breathe new life into its economic reform agenda.
The HSBC/Markit flash China manufacturing PMI rose more than expected to 50.8 in June from May’s final reading of 49.4, beating forecasts of 49.7.
It was the first time since December that the PMI was in growth territory, and it was the highest reading since November, when it was also 50.8.
“The factory sector gained momentum again and offered new signs that overall economic growth is at least stabilising,” said Nikolaus Keis at UniCredit.
The Markit/JMMA flash Japan manufacturing PMI rose to a seasonally adjusted 51.1 in June from a final reading of 49.9 in May, showing the first growth in three months.
Japan’s new orders index jumped to 52 from 49.6, indicating consumers are shrugging off an increase in sales tax as strong demand for workers puts upward pressure on wages.
External demand, however, remained weak for the two export powerhouses in a worrying sign that the US and Europe may not be recovering as strongly as hoped. – Reuters