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Meager Growth in Europe, Asia, Forcing CBs to Act

Meager Growth in Europe, Asia, Forcing CBs to Act Meager Growth in Europe, Asia, Forcing CBs to Act

Manufacturing activity showed scant sign of picking up across Europe and Asia in May as demand stayed stubbornly weak, highlighting the need for central banks to continue supporting growth.

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, Reuters reported.

Eurozone factory growth was weaker than previously thought last month while Chinese factory activity barely accelerated and South Korean exports sank. “Across the eurozone 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.

Markit’s final May manufacturing Purchasing Managers’ Index (PMI) for the eurozone 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.

 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.

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.

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 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.

Financialtribune.com