Tentative signs of global recovery

GLOBAL manufacturing ended 2013 on a strong note, as major exporters like the US, Japan, and Germany all saw demand pick up, although China’s performance remained modest, surveys showed yesterday.

Years of loose monetary policy, along with soaring stock markets, appear to be bolstering economic confidence. That bodes well for a global economy that has struggled to shake off the effects of financial crisis and recession.

US manufacturing activity grew in December at its swiftest pace in 11 months, and the rate of jobs growth was the strongest since March, according to Markit’s Purchasing Managers’ Index (PMI).

Other US economic figures, including construction spending and the Institute for Supply Management’s purchasing managers’ survey, also pointed to steady gains.

“We have had a whole string of strong ISM numbers. This is a gauge of sentiment and sentiment is improving,” said Scott Brown, chief economist with Raymond James in St Petersburg, Florida.

“Europe has turned the corner. It’s not contracting at least. The emerging markets are doing better. We are looking for growth to pick up once again in the new year and we have few headwinds to deal with, especially less fiscal drag.”

The ISM’s manufacturing PMI dipped slightly to 57 from 57.3 in November, but that’s still well above the 50 level that indicates growth. Construction spending rose 2.2% to a four-and-a-half-year high.

A Reuters poll of economists taken in mid-December forecasts annualised first-quarter economic growth of 2.5%, reaching 3% by year-end. Since then, economic data has tended to exceed forecasts.

US stock markets have been on a tear, even as the Federal Reserve eases its monthly stimulus. The S&P 500 benchmark closed at all-time highs on Tuesday, even though equities dipped modestly yesterday.

Factory sentiment hit a 10-month high in Mexico, with the HSBC Mexico Manufacturing PMI rising to 52.6 in December, thanks to improved new orders and output.

Eurozone manufacturing grew at the fastest rate since mid-2011 in December on brisk business in Germany and Italy, Markit PMIs showed. Add in the fastest growth in seven-and-a-half years for Japanese manufacturing and no major slowdown in Chinese manufacturing output, and the stage is set for a solid start to the year.

“Looking ahead, the hope for the eurozone is that recent improved confidence will encourage businesses to lift their employment and investment plans as 2014 progresses, and will also encourage consumers to spend more,” said Howard Archer, chief European and UK economist at IHS Global Insight.

Markit’s US manufacturing index rose to 55 in December from a final reading of 54.7 in November.

Markit’s eurozone manufacturing PMI rose to 52.7 in December from 51.6 in November.

While business is showing signs of life, unemployment in many eurozone countries, particularly among young people, remains high.

However, the PMIs showed almost two years of job cuts across eurozone factories nearly ended last month.

Manufacturing appears to be reviving in several eurozone countries that have struggled since the sovereign debt crisis broke out, with gains in Spain, Ireland, and even Greece.

IN Germany, Europe’s biggest economy, manufacturing grew at its fastest pace since mid-2011, with its PMI rising to 54.3 from 52.7. The Dutch, meanwhile, posted their fastest rate in more than two years.

But the eurozone’s second biggest economy, France, is still lagging. Its PMI fell to 47.0 from 48.4, a seven-month low, marking faster contraction as the year drew to a close.

Chris Williamson, the chief economist at Markit, noted that eurozone manufacturers have begun raising prices, suggesting some strengthening in almost non-existent pricing power.

“It seems likely that the manufacturing sector will help drive a meaningful, albeit still modest, recovery in the wider economy,” Williamson said.

In Britain, which in the last several months has been outperforming the eurozone economies, the manufacturing PMI unexpectedly slipped to 57.3 from 58.1. Even so, manufacturing output probably grew by 1% in the fourth quarter alone, according to Markit.

In Asia, performance was a bit more mixed. Already lacklustre output slowed in India, owing mainly to weak domestic demand. However, orders from abroad picked up.

“The most striking feature of today’s PMIs was the rise in the output component recorded everywhere but India,” wrote Krystal Tan, Asia economist at consultancy Capital Economics.

The HSBC/Markit PMI for China slipped to a three-month low of 50.5 in December, consistent with a dip in the official government PMI to a four-month low of 51.0.

Tan noted that new orders growth in Asia, while not as strong as output, was better for most economies than it was just a few months ago.

“This fits with our view that the region’s manufacturing sectors are on a gradual road to recovery, supported by loose monetary policy and strengthening external demand.”

The PMIs for South Korea and Indonesia, important emerging economies in Asia, rose in December but remained at relatively low levels.