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 The improvement in purchasing managers' surveys, released on
Thursday, will ease some worries about the outlook for the global
economy, but news that companies in the euro zone cut prices at the
steepest rate in almost five years will be of concern to the
European Central Bank, which is striving to ward off the risk of
deflation in the region.
In China, manufacturers booked more foreign and domestic orders but
activity remained weak and analysts said the surveys did not point
to a fourth-quarter turnaround for the slowing economy.
"They don't change the picture for the euro zone which is bordering
on recession. For China, although the headline number edged up, it
really doesn't point to a substantial improvement," said Andrew
Kenningham, senior global economist at Capital Economics.
"It's a very unbalanced picture with strong and sustainable growth
in the U.S. and the UK, feeble growth - if any - in the euro zone
and Japan, and emerging economies have slowed to a new lower trend
growth rate."
Markit's Eurozone Composite Flash Purchasing Managers' Index (PMI),
based on surveys of thousands of companies across the region and
seen as a good indicator of growth, rose to 52.2, above all
forecasts in a Reuters poll.
The poll had predicted a fall to 51.7 from September's headline
reading of 52.0 and October marks the 16th month the index has been
above the 50 level that separates growth from contraction.
But optimism about the future among services firms was at its lowest
level in over a year and new orders to factories fell for a second
straight month.
"The general tone of the October purchasing managers' survey
suggests that the fourth quarter is going to be another almighty
struggle," said Howard Archer at IHS Global Insight.
Markit said the PMIs point to a 0.2 percent expansion of euro zone
GDP in the current quarter, with risks to the downside. A Reuters
poll last week also predicted 0.2 percent growth.
While Germany's private sector saw faster growth this month,
France's business slump deepened, with business activity hitting an
eight-month low.
In Britain, retail sales fell more than expected in September,
despite store prices falling at their steepest rate in more than
five years, adding to signs the economic recovery is losing some of
its pace.
Similarly, euro zone inflation slipped to its lowest for five years
in September, official data showed last week, and the latest PMIs
will do little to allay fears that deflation - which hit five
peripheral countries last month - will spread.
"Given the concerns over potential euro zone deflation, it was
particularly worrying that the purchasing managers reported combined
manufacturing and services output prices fell at the fastest rate
since February 2010," Archer said.
The composite output price index slumped to 47.1 from 48.5.
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The European surveys lifted share markets on Thursday after a poor
start and leavened an otherwise shaky mood following the Chinese
numbers. [MKTS/GLOB]
CRACKS IN CHINA
China's flash HSBC/Markit manufacturing PMI edged up to a
three-month high of 50.4 from a final reading of 50.2 in September,
and just a hair's breadth from the 50.3 reading forecast by
analysts.
Growth in new orders at home and abroad, however, slowed in October
and producer prices fell, pushing factory inflation to a seven-month
low and highlighting still-soft domestic demand. The index measuring
the rate of growth in factory output also fell to a five-month low
of 50.7.
"The sub-indices do not show good momentum," said Shuang Ding, an
economist at Citi in Hong Kong.
"Both the production sub-index and the new order sub-index dropped.
Those are more relevant in terms of industry production and
forward-looking activity."
China's economy appears likely to miss the government's 7.5 percent
growth target this year and hit a trough not seen since 1990.
Third-quarter growth of 7.3 percent reported on Tuesday was the
weakest since the global financial crisis.
A sagging housing market, sluggish domestic demand and erratic
exports have dampened activity this year and while exports have
recently shown signs of picking up, the property market and
investment continues to cool and many companies are being pinched by
tighter credit.
Still, while growth is unlikely to accelerate in the fourth quarter,
the flash PMI indicates it may at least be leveling off.
"If the flash PMI is right, then October is going to be almost the
same as September, slightly better, which suggests that at least
it's not getting worse, that growth has stabilized at this quite
subdued level," said Louis Kuijs, chief China economist at Royal
Bank of Scotland in Hong Kong.
Factory activity in Japan, which has also been battling weak
consumer demand, grew at its fastest rate in seven months in October
and the pace of both domestic and export orders picked up.
(Editing by Susan Fenton)
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