Pick- up in global services uneven
ONSLAUGHT OF CENTRAL BANK STIMULUS HAS HAD SOME IMPACT BUT IS NOT LIKELY TO HALT ANY TIME SOON
Service industry growth slowed sharply in China as 2013 drew to a close but picked up across most of Europe, suggesting still very uneven global economic performance even as most signs point to a strengthening US revival.
Taken together with business surveys on manufacturing published late last week, the data suggest that an onslaught of global central bank stimulus has had some impact but is not likely to halt any time soon.
Indeed, while business has picked up in many places, particularly in the Eurozone which only recently escaped recession, inflation has been on a downward trend in most industrialised countries.
Nervousness on China
Asian shares fell to a threeweek low after news the HSBC/ Markit China services purchasing managers’ index ( PMI) fell to a two- year low of 50.9 from 52.5, underscoring nervousness about how the world’s second largest economy is performing.
The equivalent Markit survey for the Eurozone went the opposite way, rising to 52.1 from 51.7, with new orders coming in at their fastest pace in more than two years. Any number above 50 denotes expansion.
“That just goes to confirm everyone’s suspicions that the Chinese economy is shifting down onto a lower growth path, and that we will see a more balanced growth pattern across the world this year,” said Peter Dixon, economist at Commerzbank.
He expects improved growth in Europe and the US.
Markit said that while the Eurozone data suggested only a 0.2 per cent quarterly rate of economic growth, “the PMI signalled a strong turnaround in the health of the economy during the course of 2013”.
The question is whether that can be sustained, particularly when demand in China, one of the Eurozone’s biggest trading partners, is just bumping along.
Inflation pressures, which have been dormant in Western economies for many years now, have taken a second seat to discussions about the world outlook but could again come to the forefront given current trends.
The European Central Bank, which targets inflation at just under 2 per cent, cut interest rates in November to a record low of 0.25 per cent after surprise news of a plunge in Eurozone inflation to just 0.7 per cent. The Eurozone PMIs showed new orders coming in at the fastest pace since June 2011, while the employment index hit the 50 mark for the first time in two years — meaning employers are now hiring as many staff as they are laying off.
While showing a fairly broad- based upturn across most of the Eurozone’s major economies, France remained a laggard. “Certainly in the Eurozone at least, momentum is just about holding up,” said Commerzbank’s Dixon.
“But there are indications that the economy is beginning to make some kind of progress, and places like Spain — which got clobbered during the downturn — seem to be showing quite a rapid rate of recovery.”
Trends
0.25 Record low interest rate by ECB in November
52.1 Rise in the Markit index for the Eurozone