U.S., euro zone busi­ness growth slower

Enterprise - - International news -

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.

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