factories scent hint of spring, Europe still chilly
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[April 01, 2016]
By Jonathan Cable and Wayne Cole
LONDON/SYDNEY (Reuters) - Activity in
China's vast factory sector grew for the first time in nine months
during March to bring a hint of spring to the global economy, although
growth remained weak in Europe, leading to a muted response in financial
A survey due later on Friday is expected to show the United States
enjoyed a return to growth after five months of contraction
alongside another strong jobs report.
Headlining in Asia was a rise in the official version of the Chinese
Purchasing Managers' Index (PMI) to 50.2, beating forecasts and
above the 50-point mark that separates growth from contraction.
The private Caixin/Markit PMI found output, total new orders and
output prices all returned to growth, while a survey of the service
sector surprised with its strength.
"It does seem to indicate that the manufacturing sector is warming
up a bit," said Raymond Yeung, senior economist at ANZ in Hong Kong.
"New orders were up 2.8 points, which is a very strong figure."
"We think there are basically two factors driving the recovery: the
first is a possible acceleration in infrastructure spending. The
second is a broader pickup in external demand."
However, while euro zone factories rounded off the first quarter in
slightly better shape than initially thought the growth in activity
remained weak despite the deepest price-cutting since late 2009.
The euro zone survey suggested manufacturing is still dragging on
the wider economy. It came soon after the European Central Bank
unleashed a bold easing package in its latest attempt to spur growth
and drive up inflation - which at -0.1 percent in March was nowhere
near its 2 percent target goal - but it doesn't seem to be working
Despite the price-cutting and ECB stimulus, Markit's PMI for the
euro zone only rose to 51.6 from February's year-low of 51.2, only
slightly better than an earlier flash estimate of 51.4.
The bloc's economy grew just 1.6 percent in 2015 and the first
quarter's PMIs suggest there will be little improvement anytime
"The softening of forward looking components in the past two months
is consistent with our scenario of a slower growth in Q2-Q3," said
Apolline Menut at Barclays.
Looking at the country breakdowns, growth remained weak in Germany
and activity contracted in France but Spain, Italy, the Netherlands,
Austria and in particular Ireland saw robust expansions.
In Britain, outside the currency bloc, manufacturing growth edged up
in March from its weakest level in nearly three years, suggesting
the sector will contribute little to economic growth in early 2016.
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The relatively upbeat Chinese surveys should give some comfort to
Federal Reserve Chair Janet Yellen who this week cited the global
risks emanating from there as one reason to be cautious on raising
Yet, China watchers still suspect more support will be needed from
Beijing, especially if it wants to avoid a politically unsettling
rise in unemployment.
Ratings agency Standard & Poor's underlined the need for faster
reform when it changed China's credit outlook to negative on
The economic pulse across the rest of Asia was more erratic. South
Korea's PMI bounced to within a whisker of 50 in March while
stronger shipments of smartphones and steel saw exports decline at
the slowest pace in four months.
Indonesia put an end to 17 straight months of contraction as its PMI
popped up to 50.6, with output, new orders and employment all
Japan, however, was busy going backwards as the Markit/Nikkei PMI of
49.1 was the lowest since February 2013.
That echoed a gloomy survey of manufacturers from the Bank of Japan
which found sentiment at its darkest in nearly three years, a result
that lopped 3 percent off the Nikkei.
All of which heightened pressure on Prime Minister Shinzo Abe and
the central bank to do more to shore up the stuttering economy.
"This data confirmed the very cautious stance of Japanese firms
reflecting the market volatility since January. There's no signs of
corporate sentiment bottoming in coming months," said Mari Iwashita,
chief market economist at SMBC Friend Securities.
"There's more than a 50 percent chance the BOJ will consider easing
policy further this month."
(Editing by Jeremy Gaunt)
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