Manufacturing jumps in China, US, Europe inches forward


Published — Thursday 24 January 2013

Last update 25 January 2013 5:18 am

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NEW YORK/LONDON: Manufacturing in China and the United States grew this month at the fastest pace in about two years while data suggesting German growth picked up boosted hopes for a swifter euro zone recovery.
The business surveys released yesterday provided tentative signs that the world economy may be gaining traction after a sluggish 2012. Crucially, there are hopeful signals coming from the United States and China, the world's top economies.
China's vast factory sector grew at its fastest clip in two years this month, according to HSBC's flash China PMI. Exports were surprisingly strong in December, while analysts said an increase in domestic activity should also help drive recovery.
"The consumer is coming back," said Tim Condon, an ING economist in Singapore. "Manufacturers are seeing the pick-up in spending growth as reason to expand production."
Economists said that suggested the world's second largest economy was on the mend after some two years of slowing growth.
US manufacturing started the year strongly as well, as a surge in domestic demand led to the fastest rate of growth since March, 2011, according to financial information firm Markit's "flash" manufacturing Purchasing Managers Index.
Improved economic conditions in China and some parts of Europe also helped boost orders from abroad, the survey showed.
"However, it is the domestic market that is clearly providing the main impetus to the upturn," said Markit chief economist Chris Williamson.
But Briklin Dwyer, an economist at BNP Paribas in New York, said both manufacturing and housing "need to show bigger improvement for quite some time to affect the broader economy."
A separate report showed the number of Americans filing for unemployment insurance fell to its lowest level since the early days of the 2007-2009 recession.
The 17-country euro zone continues to lag Asia and North America, though surveys in January showed conditions may be improving there as well.
Markit's "flash" Composite Eurozone Purchasing Managers' Index, which surveys around 5,000 firms and is viewed as a good growth indicator, jumped by more than expected to 48.2 from December's 47.2.
PMI data for Germany, Europe's largest economy and the bloc's growth engine, suggested its economy grew at its fastest pace in a year. But in France, the euro zone's second biggest economy, conditions got worse.
"The improvement in euro zone PMIs might be just a German story, a sign that the euro zone economy is far from being out of the woods," said Annalisa Piazza at Newedge Strategy.
Indeed, the euro zone-wide index has held below the 50 mark that separates growth from contraction in all but one of the last 17 months, consistent with a contraction in overall output at a quarterly rate of about 0.2-0.3 percent, Markit said.
But the pace of the contraction is slowing.
"At this stage the trajectory counts more than the absolute level, and here the main story is that the pace of recession is clearly easing," said Marco Valli, chief euro zone economist at UniCredit.
"The drivers of the current and expected improvement remain the usual three: improving world trade — as shown by the further increase in the Chinese manufacturing PMI, slightly less fiscal tightening, and a less dysfunctional monetary policy."
European Central Bank President Mario Draghi recently said the 17 countries that use the euro are benefiting from "positive contagion."
"An end to the recession may not be far off. Indeed, today's data clearly support the view that Germany might lead the euro zone out of recession in the first of half of this year," said Martin van Vliet at ING.
Germany's composite PMI rose to a 12-month high of 53.6 from December's 50.3.
The euro zone economy contracted in the second and third quarters of last year, meeting the general definition of recession. It is expected to have deepened at the end of 2012.
A Reuters poll published on Wednesday predicted a 0.4 percent contraction in the final months of 2012 and only a flat outlook for the current quarter.
According to Reuters polls of more than 600 economists, recovering growth in Asia should help make up for political and economic malaise in more developed countries.
HSBC said the sub-indices for output, new orders and employment that account for three quarters of the China flash PMI all improved in January to hover above 50.
"Despite still tepid external demand, the domestic-driven restocking process is likely to add steam to China's ongoing recovery in the coming months," Qu Hongbin, said chief China economist at HSBC.

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