Global economy starts second half on solid footing

Chinese factory activity expanded this month at its fastest pace in 18 months as new orders surged while the euro zone's private sector also perked up, suggesting the global economy started the second half of the year on a solid footing.

While China is relying on increased government stimulus to steer its economy away from reliance on exports and towards consumer spending, Europe has taken the opposite approach, combining fiscal austerity with near-zero interest rates.

The latest HSBC/Markit flash China manufacturing purchasing managers' index suggests that government stimulus is working, rising to 52 this month from 50.7 last month, and beating the consensus forecast of 51 in a poll.

It is the highest reading since January last year and well above the 50-point level that separates growth from contraction for the second consecutive month.

The preliminary United States manufacturing purchasing managers' index was 56.3, down from last month's 57.3 and below analyst expectations for a reading of 57.5. The output subindex dipped slightly, to 60.4 from 61, a level that had been its highest since April 2010.

"The [US] data suggests the sector is growing at an annualised rate of roughly 8 per cent as we moved into the second half of the year," said Chris Williamson, the chief economist at Markit. "The growth rebound that the survey has signalled for the second quarter therefore looks to have been sustained into the third quarter."