Europe woes overshadows upbeat Asia dataReuters . London/Beijing
Prospects for a strong recovery in the global economy darkened on Thursday as sputtering factory activity in Europe overshadowed more upbeat data from Asia, at a time when central banks are running out of policy options and reluctant to do more.
Factory activity across Europe at best stagnated, and in Spain and Greece it contracted sharply, according to the latest purchasing managers’ indexes. Similar reports showed China and India growing, but at a more modest pace than in the recent past.
The data comes just a day after the European Central Bank pumped 530 billion euros of cash into the banking system, likely its last such salvo in a battle to bring down yields on government bond and stave off recession.
But despite another bailout for Greece and success in lowering borrowing costs — Spain sold 4.5 billion of government bonds on Thursday at lower yields than previous sales — Europe is still casting a dark shadow over the world economy.
‘Clearly the eurozone crisis is having an impact upon global activity, and that is going to be a theme for some time to come,’ said Peter Dixon at Commerzbank.
What is most troublesome is that several countries in the eurozone periphery such as Greece, Spain, and to a lesser extent Italy, are in recession, while the strongest economies - Germany and France - are barely growing.
Markit’s Eurozone Manufacturing Purchasing Managers’ Index rose to 49.0 last month from January’s 48.8, in line with a flash reading. But it has now been below the 50 mark that divides growth from contraction since July.
It now looks all but certain the 17-member eurozone is stuck in a mild recession. Even Germany, a top world exporter of manufactured goods, is struggling.
‘In order to confirm the view of a more robust pick-up later in the year we would need to see much stronger numbers in the months ahead,’ Dixon said.
A Reuters poll suggested the eurozone will remain in a mild recession until the second half of this year.
Greece’s factories are in freefall and its economic data point to depression rather than recession.
Its ailing factory sector shrank at the fastest pace in at least 13 years just as the country is set to be hit by another wave of austerity cuts in return for the latest bailout cash.
And in Spain, where the government is struggling to slash its public deficit, factories shed jobs at the fastest rate in more than two years, worsening employment prospects in a country where already more than one-in-five is out of work.
Unemployment in the bloc rose to a euro-era high of 10.7 per cent in January, official data showed earlier on Thursday.
The picture was slightly better in Britain. But its manufacturing sector grew at a slower pace than expected in February, further evidence that the economy is vulnerable, particularly to any more trouble in the eurozone, its main trading partner.
Yet like the ECB, which looks set to leave policy on hold, Bank of England Governor Mervyn King indicated on Wednesday that more stimulus in the form of additional government bond purchases was no certainty.
In the US, Federal Reserve chairman Ben Bernanke poured cold water on Wednesday on the notion recent upbeat signs herald a stronger recovery. But at the same time, more QE there is also looking less likely.
Comparable purchasing managers’ data due later on Thursday are expected to show manufacturers in the US, the world’s biggest economy, increased production moderately.
Asia is slowing down but remains the growth engine of the world economy. Its major central banks could also cut interest rates if needed to cushion any further slowdown.
New factory orders for Asia’s manufacturing powerhouses perked up in February, easing some concerns about the global economic slowdown, with China’s factories growing more than expected in February.
The surveys, the first leads on factory activity in the region, offered tentative signs of a recovery from the slump in the final months of 2011 caused by faltering external demand and fragile business and consumer sentiment.
But the economic picture was far from complete.
‘February numbers should be taken with a pinch of salt since they may be inflated by ‘payback’ production activity after the Chinese Lunar New Year not fully captured by seasonal adjustments,’ said Nikolaus Keis at UniCredit.
‘Nevertheless, taken together, PMI figures indicate that China’s manufacturing activity at least stabilized in February.’
India’s manufacturing expansion eased back from its strongest pace in eight months for a PMI of 56.6 in February compared with 57.5 in January. However, new orders touched a 10-month high.
Like in many countries though, official Indian data doesn’t paint such a rosy picture.
Overall economic growth slipped to its slowest pace in nearly three years in the final quarter of 2011, with manufacturing and mining at the fore of the slowdown, figures showed on Wednesday.
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