U.S., euro zone business growth slower
U.S. and euro zone business growth slowed in May while China’s factory sector contracted again, reinforcing the need for major central banks to continue supporting economic growth.
The U.S. Federal Reserve is seen unlikely to tighten monetary policy in June since the world’s biggest economy barely grew at the start of the year.
Growth in euro zone business activity also weakened in May, just two months after the European Central Bank launched a 1-trillion-euro stimulus program, and an absence of inflation pressures suggested Asian authorities could inject more stimulus if needed.
“The May (Purchasing Managers’ Index) surveys were broadly disappointing although nothing terribly bad,” said Richard Kelly, head of global strategy at TD Securities.
“There is no question the ECB is going to continue with quantitative easing up until September 2016. China is just starting the amount of additional liquidity and stimulus that will be needed to safely rebalance the economy,” he said.
Growth in the U.S. manufacturing sector slowed for a second straight month during May, with new orders rising at their slowest pace since January 2014, private data vendor Markit said on Thursday.
The preliminary U.S. Manufacturing Purchasing Managers’ Index fell to 53.8 in May from the final April reading of 54.1, although the sector’s jobs growth picked up this month from April.
Economists polled by Reuters had forecast the May reading would be 54.5. A figure above 50 indicates expansion in the sector.
The index’s flash output component fell to 55 from the final April reading of 55.3, and was the lowest since December 2014. The flash reading of the index measuring new orders also weakened in May, to 54.2 from April’s final 55.3.
“The weaker order book trend doesn’t appear to have affected hiring, at least not yet, with job creation picking up in May. However, unless production growth revives, there is a worry that payroll growth will slow as companies seek to boost productivity,” said Chris Williamson, Markit’s chief economist.
Chinese activity contracted for a third straight month as domestic and export orders shrank, adding to views Beijing will have to roll out its most aggressive stimulus measures since the global financial crisis to avert a sharper slowdown.
The flash HSBC/Markit PMI for China fell to 49.1 in May, weaker than an expected 49.3 and marking the fifth contraction in activity in six months.
“The subdued flash PMI print suggests there is no clear sign of near-term stabilisation in (China’s) economy. Risks to the outlook remain to the downside,” Barclays economist Shengzu Wang said.
Beijing has already cut interest rates three times in six months and economists believe it will have to ease further as economic growth threatens to slow below the 7-percent pace of the first quarter.