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 The U.S. accelerated at a slower pace in March than the near
four-year high hit in February, Markit's Flash Manufacturing
Purchasing Managers' Index showed. Despite the dip to 55.5 in March
from February's 57.1, the 55.4 average reading for the three first
months was higher than last year's fourth-quarter average of 53.8.
Readings above 50 indicate expansion.
"Cooling in the March survey was expected because the February
reading was the strongest since May 2010," said Daniel Silver,
economist at JPMorgan in a research note.
"But even with the move down in the headline in March, it remained
pretty solid and many of the underlying details also looked strong."
Weaker-than-expected readings from China meanwhile pointed to a
contraction in the first three months of the year and will raise
market expectations of government stimulus to arrest a loss of
momentum in the world's second-largest economy.
"It tells you something about the extent to which market concerns
about a slowdown in China are justified," said Peter Dixon at
Commerzbank. "In the euro zone, the economy is bowling along at a
reasonable pace."
A solid expansion in both the euro zone's manufacturing and services
industries in March, and growth in its second-biggest economy
France, meant the bloc's recovery pace barely slowed from February's
2-1/2-year high.
But the threat of deflation in the region was highlighted by
surveyed firms' increasing willingness to cut prices to attract
customers.
China's flash Markit/HSBC Purchasing Managers' Index (PMI) fell to
an eight-month low of 48.1 in March from February's final reading of
48.5. The index has been below 50 since January, indicating a
contraction in the sector this year.
Output and new orders both weakened but new export orders grew for
the first time in four months, the survey showed, suggesting the
slowdown has been driven primarily by weak domestic demand.
"Usually, for the month of March, the PMI will rebound, because
after Chinese New Year, there should be some activity coming back,
but this PMI is disappointing," said Wei Yao, China economist at
Societe Generale in Hong Kong. "The government probably will have to
provide some supporting measures."
Earlier this month, sources told Reuters the central bank in Beijing
was prepared to loosen monetary policy in order to keep the economy
growing at 7.5 percent. Last year, China's economy grew 7.7 percent,
the same pace as in 2012.
Premier Li Keqiang said last week investment and construction plans
would be accelerated to ensure domestic demand expands at a stable
rate.
Further signs of a slowdown in China pushed European shares lower on
Monday, although robust data from France and Germany limited their
decline.
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BUILDING BLOC
The euro zone's composite PMI, which is seen as a good growth
indicator, edged down to 53.2 from February's 32-month high but
Markit said it indicated a 0.5 percent economic expansion this
quarter, stronger than the 0.3 percent predicted in a Reuters poll
earlier this month.
Having lagged the recovery in much of the euro zone in recent
months, France's index surged through the 50-point threshold to
reach its highest level since August 2011, while German composite
figures showed growth slowed from February's 33-month high but
remained strong.
"The best news in March saw manufacturing and services output not
only return to growth in France but expand at the fastest rate for
31 months. Meanwhile, German expansion was pretty robust," said
Howard Archer at IHS Global Insight.
But worryingly for policymakers, firms have discounted prices to
drum up business for two years now and they did so in March at a
steeper rate than last month.
Inflation across the currency union was just 0.7 percent in
February, well below the European Central Bank's 2 percent target
ceiling, and the latest PMI will do little to allay fears of
deflation in the region.
A significant number of economists have doubts about the ECB's view
that deflation is not a threat and that the recovery will take hold
without any more policy action. <ECILT/EU>
Finland's central bank said on Monday inflation in the bloc could
stay low for longer than previously thought, potentially making it
harder to rebalance the economy.
The ECB has little room to maneuver, having already slashed its
main interest rate to near zero and given more than 1 trillion euros
of cheap cash to banks for a three-year period, and it held policy
steady when it met earlier this month.
"The further signs of recovery will encourage the ECB in refraining
from further monetary easing, at least in the short term," said
Martin van Vliet at ING.
(Additional reporting by Adam Rose in Beijing and Leigh Thomas in
Paris; editing by John Stonestreet and Meredith Mazzilli)
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