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GLOBAL ECONOMY-PMIs show euro zone growth sluggish, China picking up

Jonathan Cable
Thursday, 24 Oct 2013 | 6:22 AM ET

* Global recovery remains fragile

* Euro zone growth pace eases

* Chinese manufacturing at 7-month high

* U.S. factories expected to show weaker growth

LONDON, Oct 24 (Reuters) - The euro zone economy is only expanding slowly, according to surveys on Thursday that showed the rate of growth eased unexpectedly in the private sector this month, although globally, factories in China ratcheted up production.

Data due later on Thursday are expected to show factories in the United States, the world's biggest economy, also eased back on the throttle this month.

"We've seen over the last several months a significant improvement in a lot of the business indicators for the advanced economies, but they are still not at particularly high levels by historical standards," said Andrew Kennigham, senior global economist at Capital Economics.

"These numbers are suggesting the improvement may be beginning to tail off."

Markit's euro zone Flash Composite Purchasing Managers' Index (PMI) fell to 51.5 from September's two-year high of 52.2, below all forecasts in a Reuters poll that predicted an uptick to 52.5.

The survey showed that while the region's economic recovery is taking root - readings above 50 denote growth - it remains delicate.

Thursday's index, based on surveys of thousands of companies across the region and seen as a good guide to economic growth, points to a 0.1-0.2 percent expansion this quarter, similar to a Reuters poll taken earlier this month, Markit said.

"We expect the euro zone economy to remain on a recovery path, but today's weaker-than-expected PMI reading reinforces the view that it will likely be a sluggish and bumpy recovery," said Martin van Vliet at ING.

China's flash reading, the earliest gauge of the country's monthly economic performance, offered some positive news after disappointing export figures and September's manufacturing PMI, which had shown weak domestic demand.

It rose to 50.9, above the September final reading of 50.2 and marking a seven-month high.

"China's growth recovery is becoming consolidated into the fourth quarter following the bottoming out in the third," said Qu Hongbin, an HSBC economist.

UP AND DOWN ORDERS

In the first nine months of the year China's $8.5 trillion economy, the world's second-largest, grew 7.7 percent from a year earlier, putting it on track to achieve Beijing's 2013 target of 7.5 percent.

But that would be the weakest growth in 14 years.

The slowdown in Asian economies may last for the rest of this year as weak global growth and reforms in many countries hinder activity, Reuters polls showed on Thursday. Growth in China and India, the two regional powerhouses, will likely languish at multi-year lows.

Euro zone growth is only seen tepid at best through to at least 2015, having escaped from recession in the second quarter thanks to strong growth in Germany.

This month factories in Germany again stepped up a gear as expected, the PMI survey showed, although the country's service industry saw a surprising fall in the pace of growth.

And the situation was bleaker across the border in France where manufacturing activity declined at a faster pace and services expansion all but ground to a halt.

That meant the pace of growth in the euro zone's dominant service sector eased dramatically, with the PMI falling to 50.9 from 52.2. It had been expected to nudge up to 52.4 and was below all forecasts in a Reuters poll of 33 economists.

An index measuring new business slumped to 50.2 from September's 27-month high of 51.7, barely above the 50 mark that indicates growth.

In contrast, demand for Chinese manufactured goods jumped to a seven-month high, although much of that demand was domestic.