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Ebbing price pressures across the continents offers room for the
People's Bank of China and the European Central Bank to do more to
drive up inflation and support growth.
"Growth really does appear to be stalling based on these indicators
so certainly the pressure is on, although we are less worried about
China," said James Knightley, senior global economist at ING.
On Thursday, ECB President Mario Draghi fanned expectations he would
take bolder steps this month, saying the central bank stood ready to
respond to the risk of deflation. Consumer price data for the euro
zone due on Jan. 7 is widely expected to show a fall in annual
terms.
"With inflation set to fall sharply further, given what is happening
to energy costs, those concerns that Draghi highlighted suggests we
are going to get quantitative easing," Knightley said.
The risk of a deflationary spiral, alongside a stagnating euro
economy, will push the ECB to buy sovereign debt early in 2015, a
Reuters poll showed last month.
The ECB council meets on Jan. 22 and markets are wagering heavily it
will finally decide to start buying sovereign debt, a major reason
the euro hit 4-1/2 year lows on Friday.
Euro zone manufacturing concluded last year on a subdued note as
output, new orders and employment all recorded sluggish growth. Also
of concern to policymakers, activity was weak in Germany, Europe's
largest economy, while the downturn also deepened in France, the
euro bloc's second-biggest.
Markit's final December manufacturing Purchasing Managers' Index
stood at 50.6, down from an earlier flash reading of 50.8 but
beating November's 17-month low of 50.1.
That is above the 50 mark that separates growth from contraction,
but there was little sign of any improvement this month, with the
subindex for new orders at just 50.2, leading factories to barely
increase headcount in December.
British manufacturing expanded at a much weaker pace than expected
in December, suggesting its contribution to the economic recovery
ebbed further in the final months of 2014.
Global exporters should get some relief as the U.S. shifts into
higher gear, although they did not benefit as much from 2014's
recovery in the world's biggest economy as they have in the past.
The U.S. Federal Reserve has indicated it will start raising rates
from rock bottom later this year as long as the economy continues to
improve and unemployment falls further.
A U.S. Institute for Supply Management measure of manufacturing is
due later on Friday and is expected to show a still strong reading
around 57.6 for December.
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ASIA BRAKES
China's massive factory sector looked to have sputtered in December
and across the region manufacturers struggled with weak demand, both
at home and abroad.
China's official PMI slipped to 50.1 in December from November's
50.3, its lowest level of the year.
While the PMI for China's services sector, which accounts for close
to half of the economy, edged up to 54.1 from November's 53.9, many
analysts suspect 2014 economic growth has undershot the government's
7.5 percent target, marking the weakest expansion in 24 years.
With factories able to make more than consumers wanted to buy, the
pressure was intense to cut prices.
"The price measures show very strong disinflationary forces," said
analysts at Nomura. "We expect more policy easing in the first
quarter, including a 50-basis-point cut in the bank reserve
requirement ratio, to shore up domestic demand."
In India, too, inflation has slowed to only 4.38 percent annually,
the lowest since the government started releasing the data in 2012.
"With the disinflationary trend gaining ground, the Reserve Bank of
India is expected to find space for some rate cuts in 2015," said
Pranjul Bhandari, chief India economist at HSBC.
In South Korea, consumer prices grew at the slowest clip in more
than 15 years in December, opening the door for further rate cuts
there.
(Editing by Kim Coghill/Ruth Pitchford)
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