Busi­nesses strug­gled from Asia to Europe

The Pak Banker - - 6BUSI­NESS -

Global busi­ness growth slowed last month as ser­vices from Asia to Europe re­ported wan­ing de­mand and lit­tle or no in­fla­tion­ary pres­sure, sug­gest­ing more cen­tral bank stim­u­lus may be needed, sur­veys showed.

Euro zone busi­nesses had their worst month in over a year. Bri­tish ser­vices com­pa­nies en­dured their worst month in nearly three years. U.S. ser­vices are likely to re­port a de­cel­er­a­tion later.

Thurs­day's down­beat sur­veys come just days af­ter sis­ter re­ports showed man­u­fac­tur­ing out­put across much of Asia shrank in Fe­bru­ary. Growth also faded through­out Europe and re­mained slug­gish in the United States.

"Q1 is go­ing to be ugly, but I don't think it is go­ing to be sus­tained be­yond that," said James Ros­siter, se­nior global strate­gist at TD Se­cu­ri­ties.

"I don't think this is go­ing to lead to cen­tral banks run­ning to the res­cue, but of course we do ex­pect some eas­ing next week from the Euro­pean Cen­tral Bank."

Another cut in the al­ready-neg­a­tive de­posit rate is likely when the ECB meets on March 10. A Thurs­day Reuters poll gave a 60 per­cent chance the cen­tral bank would also ex­pand its bond-buy­ing pro­gram from 60 bil­lion eu­ros a month.

On Mon­day, China's cen­tral bank an­nounced it was cut­ting the amount of cash banks must hold as re­serves for the fifth time since Fe­bru­ary 2015. Some an­a­lysts ex­pect it will have to do more, in­clud­ing cut­ting in­ter­est rates this year.

The Bank of Eng­land was once ex­pected to be the first ma­jor cen­tral bank to tighten pol­icy. Now it is not ex­pected to act un­til the end of the year, and Thurs­day's read­ings may push the fore­casts even fur­ther out.

The U.S. Fed­eral Re­serve was the first big bank to move, rais­ing rates in De­cem­ber. But it is as­sess­ing how much slow­ing global growth, tight­en­ing fi­nan­cial con­di­tions and lower in­fla­tion ex­pec­ta­tions will af­fect the U.S. econ­omy, and it is un­likely to raise them again this month The fi­nal Markit Com­pos­ite Pur­chas­ing Man­agers' In­dex for the euro zone, seen as a good guide to growth, slipped to 53.0 last month from Jan­uary's 53.6, its low­est read­ing since the start of 2015. That was above a pre­lim­i­nary read­ing of 52.7 and still over the 50 mark that de­notes growth.

But in­fla­tion fell to -0.2 per­cent last month, nowhere near the ECB's tar­get of just be­low 2 per­cent, and Markit's sur­vey showed com­pa­nies cut prices at the steep­est rate for a year.

In Bri­tain, the Markit/CIPS ser­vices PMI slid to 52.7 from 55.6, the weak­est read­ing since March 2013 and worse than all the fore­casts in a Reuters poll of econ­o­mists, which pro­duced a me­dian fore­cast of 55.1.

It was the first time Markit had cited as a fac­tor in busi­ness ex­pec­ta­tions a June 23 ref­er­en­dum on whether Bri­tain should quite the Euro­pean Union. That prospect may be one rea­son BoE pol­i­cy­mak­ers say they will boost the econ­omy if nec­es­sary. "Should it vote to leave, then the near-term growth back­drop will de­te­ri­o­rate even fur­ther, which will likely re­sult in re­newed Bank of Eng­land pol­icy stim­u­lus," said James Knight­ley at ING.

News from Asia was no bet­ter. Growth in In­dia's ser­vices in­dus­try slowed and reached a seven-month low in Ja­pan. Ac­tiv­ity con­tracted in Hong Kong for a 12th month. Mean­while, Chi­nese re­sults sug­gest a pro­longed slow­down in the world's sec­ond-largest econ­omy and in its man­u­fac­tur­ing is start­ing to drag on ser­vices.

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