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 The gloomy business surveys come a little less than three months
after the European Central Bank embarked on a 1 trillion-euro
stimulus program and will likely fuel expectations its counterpart
in Beijing will have to roll out more aggressive policy measures.
Euro zone factory growth was weaker than previously thought last
month while Chinese factory activity barely accelerated and South
Korean exports sank.
"Across the euro zone as a whole it is plodding along. We can
probably do with a little bit more strength out of Germany and
France," said Peter Dixon at Commerzbank.
"We are going to have to live with rather slower growth in China. We
have seen some modest monetary easing and I expect that will
continue."
Markit's final May manufacturing Purchasing Managers' Index (PMI)
for the euro zone was 52.2, below a preliminary flash reading of
52.3 but just ahead of April's 52.0. It was the 23rd month the
reading has been above the 50 mark that separates growth from
contraction.
Worryingly for the ECB, the region's top two economies struggled.
German factory growth slowed to a three-month low and French
manufacturing activity, though improving, still contracted.
But Spanish manufacturing grew at its fastest rate in over eight
years and Italian factory output hit a four-year high.
The Markit/CIPS manufacturing PMI for Britain, outside the common
currency area, rose to 52.0 from a downwardly revised 51.8 in April,
weaker than forecast.
The focus now shifts to the United States, where hopes are pinned on
stronger factory activity to offset the global downdraft from China
and Europe. <ECONUS>
U.S. monetary policy is widely predicted to be tightened later this
year, just as expectations increase for more easing from other
central banks.
ASIAN DRAG
China's official manufacturing PMI edged up in May but a private
survey focusing on small and mid-sized firms showed their activity
had contracted for a third straight month.
Both indexes are hovering around 50, pointing to very subdued
activity at best. And both showed a further contraction in export
orders was prompting factories to shed workers.
A separate survey showed growth in China's services industry, which
had been the lone bright spot in the economy, cooled.
"We believe risks to the outlook remain to the downside," analysts
at Barclays wrote in a note.
China's central bank has already cut interest rates three times in
six months and is widely expected to ease policy further in coming
months.
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"The economy sees little sign of a pick-up," HSBC economists said.
"We forecast more aggressive policy easing, including a
50-basis-point reserve ratio cut in the coming weeks."
The sluggish performance in China and uneven demand globally has
dragged on other trade-reliant Asian economies.
South Korea's exports posted their worst annual fall in nearly six
years, and a PMI survey showed manufacturing activity shrank for a
third straight month.
"The weak export figures and the persisting weakness in other recent
indicators support our view that the Bank of Korea will have to cut
interest rates soon," said Park Sang-hyun, chief economist at HI
Investment & Securities.
The picture in neighboring Japan appeared to be slightly better,
with the Markit/JMMA final PMI reading at 50.9. But data on Friday
showed Japanese household spending unexpectedly slumped in April and
consumer inflation was roughly flat.
The patchy performance has cast doubts on the central bank's
forecast for a slow and steady economic recovery and instead
reinforced expectations it will have to pump in more stimulus.
India's PMI was the most upbeat result in the region and the survey
came after figures on Friday showed its economy grew 7.3 percent in
the fiscal year 2014/15.
But many economists say changes made earlier this year to the way
government statisticians calculate GDP may have distorted the
macroeconomic view.
That scepticism, and benign inflation, have kept alive expectations
for another quarter point rate cut on June 2.
(For a graphic on euro zone PMI momentum:
http://link.reuters.com/har72w
For a comparison of euro zone PMIs: http://link.reuters.com/xup22v)
(Additional reporting by David Milliken in London, Koh Gui Qing in
Beijing, Stanley White in Tokyo, Choonsik Yoo in Seoul and Siddharth
Iyer in Bengaluru; editing by John Stonestreet)
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