Tags: china | weak | economy | us | recovery | euro | zone

China's Weak Economy Threatens US-Led Recovery

Thursday, 20 Jun 2013 11:43 AM

 

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LONDON — Factory output in China, the world's second largest economy, weakened to a nine-month low in June, combining with a continued recession in the euro zone to threaten a global recovery led by the United States.

A day after the Federal Reserve suggested the U.S. economy was firmly on a recovery path — enough so to withdraw some monetary stimulus — data showed China's economy was stuttering.
 
Faltering demand pushed the flash China HSBC Purchasing Managers Index (PMI) down to 48.3 in June from 49.2, increasing pressure on the People's Bank of China to loosen the monetary reins.
 
Meanwhile, Markit's Flash Eurozone Composite PMI, which makes up around 85 percent of the final reading and is seen as a reliable economic growth indicator for the bloc, remained below the dividing line between growth and contraction.
 
It did, however, rise to 48.9 in June from May's 47.7, suggesting the decay has eased across the 17-nation bloc.
 
China's economy grew at its slowest pace for 13 years in 2012 and data so far this year has been weaker than forecast, bringing warnings the country could miss its 7.5 percent growth target, though possibly not by much.
 
It stands in contrast with U.S. data, which has been generally positive. Markit's flash U.S. Purchasing Managers' Index due later on Thursday expected to show a rise.
 
Fed Chairman Ben Bernanke sent financial markets reeling on Wednesday when he said the U.S. economy is expanding strongly enough for the central bank to begin slowing the pace of its bond-buying program later this year.
 
"There's a way to go — a slowdown in the Chinese economy doesn't help the outlook for the U.S. particularly, but American growth isn't entirely dependent on what happens in China," said Philip Shaw, chief economist at Investec.
 
"The euro zone flash PMIs are encouraging, they are consistent with the view that we will see a stabilization over the next few months."
 
The euro zone PMI was at its highest since March 2012, and beat forecasts in a Reuters poll of 23 economists for a more modest upturn to 48.1. But the index has been below the 50 mark dividing growth from contraction for all apart from one of the last 22 months.
 
A PMI covering services firms, which make up the bulk of the bloc's economy, jumped to 48.6 last month from 47.2, its highest since January but its 17th straight month below 50.
 
Still, that was above even the most optimistic of forecasts in a Reuters poll and smashed the median expectation for a rise to 47.5. The survey also showed firms were increasingly optimistic about the year ahead.
 
Markit, however, said the latest PMI data suggested the economy would contract 0.2 percent in the current quarter.
 
The European Central Bank has come under growing heat to take more action to help bring a quicker end to the bloc's longest recession, but economists polled by Reuters last month did not predict any easing of policy in coming months.
 
Despite China's economy showing signs of faltering, adding to the pressure on the central bank to take steps to ease policy, the chances of a hard landing remain small.
 
"The chance of economic growth slipping below 7 percent is quite low, because existing measures are still effective in helping stabilize the economy," said Wang Jin, analyst at Guotai Junan Securities in Shanghai.
 
In a sign that there would be a wait before any sharp pick up both the Chinese and euro zone PMIs saw a continued fall in new orders. New orders in the bloc fell for the 23rd month, although at a shallower pace.
 
"It's suggesting that things are moving in the right direction but it's not going to happen fast. It's still a weak picture," Markit's chief economist Chris Williamson said.

© 2014 Thomson/Reuters. All rights reserved.

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