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China on mend but eurozone still shrinking

China’s vast manufacturing sector expanded in December but the eurozone is probably deeper in recession, business surveys suggested.

There are some rays of hope here

Data researcher Markit said its Eurozone Flash Composite Purchasing Managers Index, which combines both manufacturing and services sector data, showed small signs of improvement.

It rose to a nine-month high of 47.3 this month, beating forecasts for 46.8.

But this remains below the 50 mark that signifies contraction and Markit said the PMI data for the fourth quarter is consistent with a decline in overall growth of 0.5 per cent.

China’s data, however, may signal that the global economy is on the mend.

“The improved conditions on financial markets and the pick-up in global growth momentum, as signalled by the further pick-up in the Chinese PMI, should steady the pace of decline from here on,” said Martin van Vliet at ING.

China’s manufacturing sector expanded in December at its fastest pace in 14 months as new orders and employment rose, adding to evidence of a pick-up in the economy that helped to boost market sentiment.

“The renewed rise in the headline PMI is a further sign that the Chinese economy is already starting to recover,” said Nikolaus Keis at UniCredit.

The HSBC flash PMI for December rose to 50.9, the highest level since October 2011 and the fifth straight monthly gain.

A figure above 50 indicates that growth is accelerating, while one below 50 shows slowing growth.

The eurozone economy contracted 0.2 per cent in the second quarter and 0.1 per cent in the third, meeting the technical definition of a recession and a Reuters poll last week predicted a 0.3 per cent contraction in the current period.

That would be slightly better than the PMIs suggest.

Earlier, composite PMI data from Germany, Europe’s largest economy, showed its private sector bounced back to growth for the first time in eight months in December.

In neighbouring France, however, while the downturn eased the PMI held below 50 for the 10th straight month.

The regional PMI has been below the 50 mark for all but one of the past 16 months but the eurozone agreed a deal on Thursday to provide nearly €50 billion in long-delayed aid to Athens.

It averts a catastrophic default and secures Greece’s survival in the eurozone after months of doubt and political turmoil. Athens had repeatedly missed fiscal targets agreed with the EU and the International Monetary Fund, and stalled structural economic reforms.

The PMI for the eurozone’s dominant service sector rose to 47.8 this month from 46.7, beating forecasts for a rise to 47. The continued downturn came despite firms cutting prices despite their costs rising – cutting into their margins – for the ninth month.

Official data showed inflation in the bloc eased to 2.2 per cent in November, potentially giving the European Central Bank room to ease policy further and support growth.

Manufacturers, who led the bloc out of the last recession, fared little better.

The factory PMI crept up to 46.3 from 46.2, missing forecasts for a steeper rise to 46.6.

But in a further sign, the global economy might be improving, the rate of decline in new export orders from factories eased, with the sub-index at a nine-month high of 46.8.

“There are some rays of hope here. It is moving in the right direction so there are signs that the business cycle has reached a low point globally and is picking up,” Chris Williamson, chief economist at Markit said.

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