Manufacturing data shows China, world recovering

Data points to strong gains in manufacturing activity in the US, China and euro zone

PUBLISHED : Thursday, 22 August, 2013, 10:49am
UPDATED : Friday, 23 August, 2013, 5:31am

Business surveys yesterday suggested the world economy is on the mend, with US and Chinese manufacturing activity at multi-month highs and better-than-expected growth in the euro zone.

A preliminary reading of the HSBC China Manufacturing PMI rebounded to a four-month high of 50.1, compared with last month's final reading of 47.7. New orders surged to 50.5 from 46.6, although external situation remained lacklustre.

The upside surprise suggests that the recent fine-tuning of government policy has begun to feed into improvement in domestic demand conditions
JP Morgan China chief economist Zhu Haibin

The upside surprise "suggests that the recent fine-tuning of government policy has begun to feed into improvement in domestic demand conditions", said JP Morgan China chief economist Zhu Haibin.

Zhu said Beijing appeared keen to selectively support infrastructure investment in areas such as railway and urban facilities, hinting at solid public-sector fixed-assets investment growth in coming months.

The small-enterprise-dominated HSBC PMI's return above the threshold of 50 matches an expansionary trend shown in official PMI data in recent months.

Economists are beginning to revise upwards their forecasts about China's growth outlook, after hastily cutting predictions during the second quarter.

Deutsche Bank economist Ma Jun raised his second-half growth forecast to 7.7 per cent from 7.6 per cent previously.

Meanwhile in the US, financial firm Markit said manufacturing quickened this month at its fastest pace in five months, with the PMI hitting 53.9, just below economists' forecast of 54. The index stood at 53.7 last month.

The data should bolster the case for the Federal Reserve to start withdrawing support for the US economy this year - possibly as soon as next month - and enhance the appeal for investors of developed economies in North America and Europe.

Markets are nervous about Fed plans to pare back the US$85 billion of bonds it has been buying monthly. However, a Fed retreat would amount to a vote of confidence in the world's largest economy, an important anchor for global growth.

"Tapering would be a sign that the Fed believes the US economy is gaining some traction. It signals that the recovery is more solid," said Philip Shaw, the chief economist at Investec.

"There are signs that momentum is building, albeit slowly, in the pace of the euro-zone recovery, and in China, too."

In Europe, Markit's flash composite PMI showed business activity across the euro zone also picked up faster than expected, with the index hitting 51.7 from last month's 50.5. This month's reading was the highest since mid-2011. Growth in Germany, the bloc's largest economy, was the fastest in seven months.