LONDON/BEIJING (Reuters) -
Private business activity in the euro zone grew at just
under its fastest pace in three years this month, while
contraction in China's vast manufacturing sector slowed
to its weakest pace this year, surveys showed on
Thursday.
But in Europe, only drastic price cuts helped stop a further slide,
after a sharp slowdown in factory growth took the shine off an
unexpected pickup in the service industry. The slowdown kept alive
worries about dangerously low inflation.
"Overall, the data is a bit of a relief after disappointing first
quarter figures," said Christian Schulz, senior economist at
Berenberg Bank.
"In China, the authorities are doing something and the economy is
responding. (But) the European Central Bank is worried because it
looks like inflation will stay low for a long period of time."
Markit's Composite Purchasing Managers' Index for the currency bloc,
seen as a good indicator of growth, edged down to 53.9 from a near
three-year high of 54.0 in April, matching the consensus forecast in
a Reuters poll of analysts.
Readings above 50 indicate expansion, and Markit said the index
pointed to second-quarter economic growth of 0.5 percent, which
would be the strongest in three years, and better than the 0.3
percent predicted in a Reuters poll on Wednesday.
European stocks and government bonds rose after the data were
released on Thursday.
But the data also revealed the biggest split between the euro zone's
two largest economies since February. France contracted while
Germany bounded ahead, although led by services rather than
manufacturing.
RATE CUT
Decent overall growth is good news for the ECB, but with official
inflation running at 0.7 percent, well below its 2 percent ceiling,
it will be concerned that companies slashed prices for the 26th
month running to drum up trade.
The ECB is expected to cut what little it has left of its main
interest rate and push the deposit rate below zero next month, a
Reuters poll predicted this week.
"Today's data are a reminder of the fragility and unevenness of the
recovery. With inflation low and a sustained euro zone recovery not
yet assured, further ECB easing in June looks all but certain," said
Martin van Vliet at ING.
The economic picture was also mixed for the world's second-largest
economy, China.
HSBC/Markit's Flash China Manufacturing PMI rose to 49.7 in May from
April's 48.1, reaching its highest since December and beating the
median forecast of 48.1 in a Reuters poll.
Sub-indexes measuring output as well as domestic and foreign demand
all recovered sharply. But factory jobs were shed for the 13th month
and the overall index was still pointing to contraction.
Premier Li Keqiang said in March it was acceptable for GDP growth to
be slightly below the 7.5 percent target this year as long as the
job market held up. Previously, he has said growth of at least 7.2
percent was needed to create sufficient jobs.
But just as China and the ECB look set to ease policy the Bank of
England is increasingly becoming the hot favourite to be the first
major central bank to begin hiking interest rates - probably in the
second quarter of next year.
Official data earlier on Thursday confirmed Britain's economy grew
0.8 percent last quarter as households spent more and companies
increased investment at the fastest pace in a year.
Federal Reserve policymakers last month also began laying groundwork
for an eventual retreat from easy monetary policy with a discussion
of how to best control interest rates as they remove trillions of
dollars from the financial system.
But any tightening is still some way off. A survey due from the
United States is expected to show manufacturing activity picked up a
tad this month.
A similar survey showed Japanese factories had contracted slightly
in May but at a slower pace than in April, suggesting some recovery
from the impact a sales tax increase last month.
The Markit/JMMA flash Japan Manufacturing PMI rose to a seasonally
adjusted 49.9 in May from April's 49.4.
(Editing by Kim Coghill, John Mair and Janet Lawrence)
But in Europe, only drastic price cuts helped stop a further slide,
after a sharp slowdown in factory growth took the shine off an
unexpected pickup in the service industry. The slowdown kept alive
worries about dangerously low inflation.
