Beijing: Companies struggled in China and much of the rest of Asia in March, suggesting central banks may have to resort to more stimulus, just as factories in the Eurozone begin to reap rewards from ultra-easy policy there.
Any indication of recovery will delight the European Central Bank (ECB) which embarked on a quantitative easing programme in March, aiming to buy around €60 billion (Dh237.47 billion) of bonds every month to drive up inflation and spur the recovery.
But three separate surveys of China’s factory and services sectors released yesterday showed stubborn weakness in the world’s second-biggest economy, putting the government’s newly minted growth target of around 7 per cent for the year at risk.
“The Chinese numbers don’t look too bad but our guess is that the People’s Bank of China will ease again. Another cut in interest rates might be on the cards,” said Philip Shaw, chief economist at Investec.
“The recent numbers from the Eurozone have suggested that the acuteness of the crisis has eased but there remains more work to be done.”
Markit’s final March manufacturing Purchasing Managers’ Index (PMI) for the Eurozone was at a 10-month high of 52.2, up from 51.0 in February and the 21st month in a row it has been above the 50 mark that separates growth from contraction.
Growing demand for exports helped drive the output index — which feeds into a composite PMI that is seen as good growth indicator — to a ten-month high.
Speculation QE was coming from the ECB, and its eventual launch, has sent the euro down around 12 per cent since January and factories have benefited as it has not only made exports cheaper but also meant competing imports were more expensive.
Bolstered by a similar pick-up in export orders and strong domestic demand, Britain’s manufacturing industry grew at the fastest rate in eight months in March.
Stock markets and the dollar saw solid starts to the second quarter yesterday, following the upbeat European data.
Analysts predict a modest expansion in US manufacturing activity, taking the view that a recent slowdown was a blip related to harsh winter weather and keeping alive expectations the Federal Reserve will start to raise interest rates later this year.
However, hopes that a strengthening US economy and lower energy costs would spur activity in Asia have proved elusive. “For Asia-Pacific as a whole, we still see limited evidence that those tailwinds, namely the pick-up in US consumer spending and sharply lower oil prices, are boosting growth,” said Paul Gruenwald, Standard & Poor’s Asia-Pacific chief economist.
