Weak data puts pressure on US to drive global recovery

Eurozone business growth was weaker than expected this month and factory activity in Asia’s top two economies remained stuck in low gear, putting the onus squarely on the US to drive a pick-up in global growth.

An absence of inflation pressures suggested Asian authorities could inject more stimulus if needed, while growth in the troubled currency union weakened just two months after the European Central Bank launched its €1-trillion stimulus programme. Meanwhile, the US Federal Reserve has all but put to bed speculation it would tighten policy in June as the world’s biggest economy barely grew at the start of the year. “The May (Purchasing Managers’ Index) surveys were broadly disappointing although nothing terribly bad,” said Richard Kelly, head of global strategy at TD Securities. “There is no question the ECB is going to continue with quantitative easing up until September 2016. China is just starting the amount of additional liquidity and stimulus that will be needed to safely rebalance the economy.”

Markit’s Composite Flash PMI for the eurozone, based on surveys of thousands of companies and seen as a good growth indicator, fell to 53.4 from 53.9.

May marks the 23rd month above the 50 level that separates growth from contraction and Markit said the PMI pointed to 0.4% economic growth in the current quarter, matching the prediction in a Reuters poll this week. Eurozone prices were flat year-on-year in April, ending four months of falls, inflation data showed this week. World shares hovered near all-time highs, yesterday, after downbeat Chinese data but European markets opened largely subdued after the disappointing European numbers.

The US flash was, last night, expected to show a rise to 54.5 from 54.1, according to a Reuters poll.

Annabel Fiddes, an economist at Markit, said relatively strong deflationary pressures in China should leave plenty of scope for authorities there to implement further stimulus measures.

Beijing has already cut interest rates three times in six months and economists believe it will have to ease further as economic growth threatens to slow below the 7% pace of the first quarter.

Chinese activity contracted for a third straight month as domestic and export orders shrank, adding to views Beijing will have to roll out its most aggressive stimulus measures since the global financial crisis to avert a sharper slowdown.



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