Jonathan Cable and Koh Gui Qing London and Beijing

Manufacturers around the world enjoyed a solid start to the year as order books swelled, surveys showed yesterday, though a struggle for growth in China and a contraction in France took the shine off the overall picture.

Euro zone factories had their best month since mid-2011 and, with unemployment near record highs, increased headcount for the first time in two years. They were led by a sharp pick-up in Germany and a revival among the states on the region’s periphery. But France was still a drag on the region.

“The major area of uncertainty over the last few years has been the euro area, but the latest PMI [purchasing managers’ index] numbers tend to confirm [it]… is on a gentle recovery path with the periphery gaining encouraging momentum as well,” Investec economist Philip Shaw said.

“The latest numbers on China, and the UK, are a little less positive but there is nothing that would signal any major concerns about those economies from today’s surveys.”

Growth in China’s service sector slowed to a five-year low, putting the focus on concerns of a slowdown in Asia’s economic powerhouse – a factor behind the sell-off that has hit emerging markets in the past two weeks.

The rate of growth in activity in US factories probably also slowed last month, figures due later were expected to show, echoing earlier data from the UK that suggested a swift upturn in factory activity there eased slightly.

Markit’s euro zone PMI rose to 54.0 last month, pipping an earlier flash reading of 53.9 and well ahead of December’s 52.7. The last time it was higher was in May 2011. A reading above 50 indicates growth.

The sub-index measuring output, which feeds into a composite PMI due tomorrow and seen as a good guide to broader economic growth, rose to 56.7 from December’s 54.9, its highest since April 2011.

Germany’s PMI jumped to a 32-month high but while France’s rose to a 23-month peak, it held firmly below the breakeven 50 mark.

Factories increased headcount to meet demand, providing some cheer to policymakers after data on Friday showed unemployment across the bloc held near a record high of 12 percent for the third month running in December.

However, manufacturers were unable to raise prices last month as fast as they did in December, possibly stoking fears of deflation in the region after consumer price inflation fell unexpectedly last month.

Recent numbers from China have painted a subdued picture of developments there.

The Markit/HSBC manufacturing PMI fell to a six-month low of 49.5 last month. A similar government measure also fell to a six-month low, although it indicated the sector was still expanding modestly.

A government PMI on the services sector fell to 53.4 last month, firmly in expansion territory but still the index’s lowest level since December 2008.

That data provided further reminders of the pressures on China as Beijing tries to push major reforms without tamping down growth too much. China’s government wants to reduce a heavy reliance on the investments and exports that fuelled economic growth in the past three decades in favour of consumption and services, which it thinks will bring lower but more sustainable growth.

Other PMIs yesterday showed Indian manufacturing running at its strongest pace since last March and in South Korea the sector was growing at its fastest in eight months. An Indonesian PMI showed a slight pick-up in activity.

Last week, a Japanese PMI rose to its highest level in nearly eight years. – Reuters