China, Asian factory growth gathers pace, Europe falters

Written by Reuters | Bangalore/Sydney | Updated: Aug 2 2014, 07:57am hrs
Manufacturing activity in China and most of Asia gathered pace in July as firms responded to burgeoning new orders by raising output, hinting at a revival in global trade, although euro zone factories barely managed to chug along.

China's official manufacturing purchasing managers' index (PMI) rose to 51.7 in July, the strongest since April 2012, beating expectations for 51.4 and up from 51 in June. The HSBC/Markit measure also rose to 51.7, an 18-month peak.

A comparable survey in the euro zone disappointed, however, as factories there grew less than expected, with the PMI at 51.8, matching June's reading and below a flash estimate. A reading above 50 separates growth from contraction.

While the China PMI suggests Beijing's stimulus measures were gaining traction in the world's second largest economy, the lull in euro zone factories and firms' inability to increase prices underscored the fragility of Europe's recovery.

There are clear disparities between Europe and Asia in the PMIs but exports should pick up reasonably well globally and the euro zone's largest economy, Germany, should benefit from it, Commerzbank economist Peter Dixon said.

The latest CIPS/Markit data for Britain showed the weakest factory growth in a year along with modest price rises. The PMI fell sharply to 55.4 in July from 57.2 in June. Markit said the index was still well above its long-term average.

Analysts said the strong China numbers point to better economic growth than the 7.5% seen in the second quarter. Taken literally, these PMIs signal an exceptionally strong start for third-quarter growth in China, said Annette Beacher of TD Securities in Singapore.

South Korea also reported exports to the US expanded by over 19% in July, although subdued inflation and weakness in shipments to China kept alive the prospect of an interest rate cut at this month's central bank

policy review.

The latest PMI data came a day after euro zone inflation dropped to 0.4% last month, its lowest in five years.