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 Euro zone private business activity expanded slower than expected in
August, despite widespread price cutting. This is before the full
effects of sanctions imposed on and by Russia over Ukraine are felt.
Meanwhile, China's manufacturing activity hit a three-month low in
August and a Reuters poll showed Japan's economic recovery is likely
to be modest despite a small acceleration in the factory sector.
Data due later from the United States is expected to show a similar
slowdown.
"If you take all these things together we are clearly looking at a
global economy that doesn't have a huge amount of momentum behind
it," said Peter Dixon at Commerzbank.
Markit's Composite Purchasing Managers' Index (PMI) for the euro
zone will provide gloomy reading for the European Central Bank (ECB)
as it showed the big two economies of Germany and France struggling.
Based on surveys of thousands of companies across the region and a
good indicator of overall growth, the Composite Flash PMI fell to
52.8 from July's 53.8, far short of expectations in a Reuters poll
for a modest dip to 53.4.
However, readings above 50 do indicate expansion and Markit said the
data point to third-quarter economic growth of 0.3 percent, matching
predictions from a Reuters poll last week.
But there are challenges facing the economy now that it didn't have
to worry about a few months ago.
Europe and others in the West imposed economic sanctions on Moscow
over the Kremlin's support for rebels in eastern Ukraine, prompting
a tit-for-tat response from Russian President Vladimir Putin.
"It is clearly premature to start fretting about a new downturn,"
said Martin van Vliet at ING. "That said, with geopolitical tensions
increasingly posing a threat to the subdued and fragile upturn it is
clearly premature to assume that the ECB's easing work is fully
done."
Companies in Europe are beginning to show signs of strain.
Germany's Adidas, the world's number-two sportswear firm, cut its
profit target due to the ruble's fall and increasing risks to
Russian consumer sentiment. Brewer Heineken said its sales volume in
Russia fell by a "low-double digit" percentage.
The composite PMI in Germany - Russia's biggest trade partner in the
European Union which has already seen exports to the country plunge
in the first half of the year - fell to 54.9 from 55.7. For France,
the euro zone's second largest economy, the Composite PMI rose from
49.4 to the break-even mark at 50, meaning it is neither expanding
nor contracting.
In Britain, which does not use the euro, consumers have been the
main driver of the country's economic recovery which began last
year. But retail sales rose in July at a weaker pace than expected.
ASIAN STUMBLE
The PMI for Japan showed factory activity accelerated in August as
export and domestic demand increased, in another sign the economy is
steadying after shrinking in the second quarter due to a sales tax
increase.
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But the Reuters Tankan survey indicated the economic recovery is
likely to be modest, which could keep pressure on the central bank
to act to sustain growth in the world's third largest economy.
HSBC/Markit's Flash China Manufacturing PMI fell to 50.3 in August
from July's 18-month high of 51.7, badly missing a Reuters forecast
of 51.5 but just above the 50 threshold.
"The sharp drop in the PMI is perhaps not surprising given last
month's disappointing activity and lending data. That said, we are
not expecting a rapid deterioration in economic momentum," Julian
Evans-Pritchard, China economist at Capital Economics, wrote in a
note.
"Meanwhile, we expect the government to continue to fine tune policy
as necessary to prevent growth from slipping too much over the
coming quarters."
A burst of policy stimulus since April lifted China's annual
economic growth to 7.5 percent in the second quarter - in line with
the full-year official growth target - from 7.4 percent in the first
quarter - the weakest pace in 18 months.
But with conditions looking increasingly unsteady into the third
quarter as policy support moderated, some analysts say even more
stimulus may be needed in coming months to bolster growth and offset
the downdraft from the housing market.
"Definitely there will be more measures to keep growth momentum
steady in coming months," said Zhu Qibing, an economist at Minzu
Securities in Beijing. "But we don't expect interest rate cuts in
the near term as the central bank has reiterated that it would keep
its prudent monetary policy unchanged."
Similarly, no action is expected from the ECB in the coming months
as it waits to see what effect another round of temporary access to
cheap cash for banks has on inflation and growth.
Consumer prices in the euro zone rose just 0.4 percent on the year
in July, the weakest annual rise since October 2009 at the height of
the financial crisis, and well within the ECB's "danger zone" of
below 1 percent.
According to the composite output price index firms cut prices for
the 29th month - and at a faster rate than in July.
(Additional reporting by Tetsushi Kajimoto in Tokyo Editing by
Jeremy Gaunt)
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