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Global economy,Europe up,China sags

Euro zone companies return to weak growth in January; Chinese service sector growth sags

Written by Agencies | London |
February 3, 2012 7:16:42 pm

Europe’s floundering economy probably perked up in January,although sharply slowing growth among Chinese services companies suggests the world economy started 2012 in mixed form,according to business surveys on Friday.

Still,there were plenty of bright spots from Friday’s series of purchasing managers indexes (PMIs),which measure changes in the activities of companies all over the world.

Britain’s service sector expanded at its fastest pace in 10 months in January,exceeding every expectation,while activity in Indian and Russian services companies grew at the fastest pace in six months.

The euro zone’s vast services economy snapped four months of decline by expanding last month,albeit very weakly. The PMIs suggested that a recession there,widely expected by economists,will be mild.

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And U.S. jobs and PMI data later on Friday should show continued steady progress in the world’s No.1 economy,according to analysts polled by Reuters.

All in all,the improvement in the services PMI index is seen as a sign that the (euro zone) economy is not as depressed as some have feared,said Annalisa Piazza,economist at New Edge Strategy.

Business and consumer sentiment surveys from the euro zone since the start of the year have shown a definite upturn in optimism,although hard data still point to profound economic weakness in the common currency area.

Retail sales during December,including the busy shopping period after Christmas,fell some 1.6 percent compared with a year earlier,suggesting some of the optimism may be of the frothy kind.

Economists also warn that developments in the euro zone debt crisis are still critical to the bloc’s economic outlook.

Greece at least looks likely to avoid a ruinous sovereign debt default by agreeing a debt swap deal and a new bailout with the International Monetary Fund,although market focus is shifting back to Portugal and its long-term solvency.

News from China earlier on Friday qualified any optimism that the global economy started this year with a strong bounce.

China’s official government services PMI dipped to 52.9 in January from 56.0,suggesting sharply slowing growth,although that was still comfortably above the 50 mark that denotes expansion.

That followed manufacturing PMIs on Wednesday that showed activity in China’s factories expanded only very slightly in January. Both the services and manufacturing data suggest that Chinese authorities will take further policy measures to support growth.

The overall strength of economic growth remained relatively weak,which will inevitably weigh on the jobs market if weakness persists for longer,said Qu Hongbin,chief economist for China at HSBC.


Arguably the biggest surprise of the day was from the British services PMI,which rocketed to 56.0 from 53.5 in December,beyond every forecast from 26 economists and the strongest showing since last March.

Given all the concerns about the weakness of activity in Q4,the prospect of a double-dip recession,I think those fears now appear to be dispelled to a large extent,said Peter Dixon,economist at Commerzbank.

The euro zone PMI too raised slim hopes the euro zone might avoid a fully-fledged recession,which economists have long regarded as an odds-on bet.

The euro zone service PMI edged up to 50.4 in January from 48.3,its first showing above the 50 mark that divides growth from contraction since last August.

It is encouraging to not only see signs that the German economy has sprung back into life,but also that the rate of decline in the periphery has started to ease quite substantially,said Chris Williamson,chief economist at PMI survey compiler Markit.

India’s services sector grew at its fastest pace in six months during January as new business swelled,while rising employment boosted Russian service companies,sending the PMI there to 56.5 in January from 53.8.

The New Year holidays seem to have recharged the batteries of service providers,said Alexander Morozov,chief economist for Russia and CIS at HSBC.

Data from the United States later on Friday should confirm the world’s biggest economy is also moving in the right direction.

Economists expect U.S. employment growth slowed in January,but that the overall trend of improvement should remain intact,with 150,000 new non-farm jobs added in data due at 1330 GMT,down from 200,000 in December.

And the U.S. non-manufacturing ISM survey,comparable to the PMIs and due at 1500 GMT,should stay steady at 53.0 in January – consistent with moderate service sector growth.

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