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 Any indication of recovery will delight the European Central Bank
which embarked on a quantitative easing programme in March, aiming
to buy around 60 billion euros of bonds every month to drive up
inflation and spur the recovery.
But three separate surveys of China's factory and services sectors
released on Wednesday showed stubborn weakness in the world's
second-biggest economy, putting the government's newly minted growth
target of around 7 percent for the year at risk.
"The Chinese numbers don't look too bad but our guess is that the
People's Bank of China will ease again. Another cut in interest
rates might be on the cards," said Philip Shaw, chief economist at
Investec.
"The recent numbers from the euro zone have suggested that the
acuteness of the crisis has eased but there remains more work to be
done."
Markit's final March manufacturing Purchasing Managers' Index (PMI)
for the euro zone was at a ten-month high of 52.2, up from 51.0 in
February and the 21st month in a row it has been above the 50 mark
that separates growth from contraction.
Growing demand for exports helped drive the output index -- which
feeds into a composite PMI due on Tuesday that is seen as good
growth indicator -- to a ten-month high.
Speculation QE was coming from the ECB, and its eventual launch, has
sent the euro <EUR=> down around 12 percent since January and
factories have benefited as it has not only made exports cheaper but
also meant competing imports were more expensive.
Bolstered by a similar pick-up in export orders and strong domestic
demand, Britain's manufacturing industry grew at the fastest rate in
eight months in March.
Stock markets and the dollar saw solid starts to the second quarter
on Wednesday, following the upbeat European data. [MKTS/GLOB]
SIMULATING ASIA
Analysts predict a modest expansion in U.S. manufacturing activity
when figures are released later on Wednesday, taking the view that a
recent slowdown was a blip related to harsh winter weather and
keeping alive expectations the Federal Reserve will start to raise
interest rates later this year.
However, hopes that a strengthening U.S. economy and lower energy
costs would spur activity in Asia have proved elusive.
"For Asia-Pacific as a whole, we still see limited evidence that
those tailwinds, namely the pick-up in U.S. consumer spending and
sharply lower oil prices, are boosting growth," said Paul Gruenwald,
Standard & Poor's Asia-Pacific chief economist.
China's official PMI ticked up to 50.1 in March from 49.9, but a
private survey from HSBC which focuses on small and mid-sized firms
showed factory activity contracted after two months of recovery.
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Both reports indicate economic conditions remain sluggish, which may
be reflected in China's first-quarter growth figures on April 15.
"Recent policy actions, such as mortgage rule easing, suggest that
concerns at the top level of the government are rising. We believe
this suggests that more easing measures, particularly monetary
easing measures, will be rolled out," said Qu Hongbin, HSBC's chief
China economist.
"The March economic activity data are due to be released in the next
two weeks. Further confirmation that the real economy is now
tracking below the official target will likely prompt easing
measures from the PBoC."
Some are also calling for even more stimulus in Japan, including one
of the architects of premier Shinzo Abe's "Abenomics" reflationary
policies.
The Bank of Japan must ease policy further at its meeting on April
30, Kozo Yamamoto told Reuters on Wednesday.
"The economy is at a standstill and prices are seen falling ahead.
To do nothing isn't an option for the BOJ," said Yamamoto, an expert
on monetary policy in Abe's ruling Liberal Democratic Party.
Japanese manufacturing activity expanded more slowly in March than
in February as domestic orders contracted for the first time in
almost a year, in a worrying sign the recovering economy may be
losing momentum.
Figures elsewhere in Asia provided a sobering read.
In South Korea, exports suffered their biggest fall in two years
while factory activity in Indonesia - the biggest economy in the
Association of Southeast Asian Nations (ASEAN) - contracted for the
sixth straight month as output and new orders dropped at the fastest
rate on record.
(Additional reporting by Leika Kihara and Yuko Yoshikawa in TOKYO,
Koh Gui Qing and Pete Sweeney in BEIJING, Christine Kim and Choonsik
Yoo in SEOUL, Nilufar Rizki in JAKARTA and David Milliken in LONDON;
Editing by Alan Raybould and Toby Chopra)
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