China, India PMIs show factory-sector growth stumbling

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Published May 02, 2013

| Reuters

Factory-sector growth in China and India stumbled in April to further underline the impact of a fragile global economy, which is under pressure from the euro zone recession and fresh signals of weakness in the United States.

Reports on Wednesday showed manufacturing growth in the United States eased in April, while figures due later on Thursday from the euro zone are expected to show the sector there firmly entrenched in contractionary territory.

The purchasing managers indexes add to a string of economic data that has dented optimism seen at the start of the year, when there had been some signs the world economy was picking up.

The PMIs weighed on financial markets, partly reinforcing expectations that the European Central Bank will ease policy later on Thursday to help revive a regional economy where unemployment stands at a record high.

"Market tone is dictated by the tug-of-war between growth prospect worries and support from sustained monetary stimulus," said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.

The Chinese economy "is fragile and vulnerable to outside shocks, namely the U.S. economy, which is showing signs of pausing", Yuihama said.

China's official PMI fell in April to 50.6 from 50.9 in March, while the HSBC PMI dropped to 50.4 from 51.6 as new export orders fell. Fifty divides expansion from contraction on a monthly basis.

"The slower growth of manufacturing activity in April confirmed a fragile growth recovery of the Chinese economy as external demand deteriorated and renewed destocking pressures built up," said Qu Hongbin, chief China economist at HSBC.

"Looming deflationary pressures also suggest softer overall demand conditions. All this is likely to weigh on the labor market, which is likely to invite more policy responses in the coming months," Qu said.

The data underlined concerns that China's economic growth is struggling to pick up after a disappointing first quarter. A Reuters poll suggested growth would pick up in the second quarter to 8.0 percent after 7.7 percent in the first quarter, but analysts said forecasts were now at risk of a downgrade.

"The external sector is likely to be a major headwind for Chinese growth in the coming months," Barclays said in a client note.

"The across-the-board declines in the PMI reports point to soft industrial activity as we enter the second quarter. We maintain our growth forecast of 7.9 percent (2013 annual) which we have held since last December, but see some downside risks," Barclays said.

New export orders were rising in both South Korea and Japan in April but at a slower pace than in March, PMIs showed.

Japan's PMI, released earlier this week, was the highest in just over a year at 51.1, the latest evidence that Prime Minister Shinzo Abe's aggressive economic policies are benefiting the economy.

"This would represent a solid growth performance, maintaining the trend that was observed in the first quarter of the year and latest anecdotal evidence suggests a weaker yen is playing a part in the expansion by raising export volumes," said Paul Smith, senior economist at Markit, which produces the PMI data.

South Korea's overall PMI also rose in April, as domestic new orders more than offset the impact of the cooling in overseas orders.

India's factory sector, which is mostly geared to domestic demand, lost further momentum in April as output growth slipped to its weakest level in more than four years. However, unlike China, new export orders perked up to suggest some support for output in the months ahead.

Asia's third-largest economy is already facing its worst economic slowdown in a decade and faltering growth in the factory sector will bolster expectations for a central bank rate cut on Friday.

In the United States, the Institute for Supply Management said its PMI fell in April to 50.7 from 51.3 with a noticeable pull back in employment growth, pointing to a risk that the government's April jobs report due on Friday may fall short of expectations.

The Markit PMI also fell, to 52.1, its lowest level since October.

(Additional reporting by Yati Himatsingka in BANGALORE, Se Young Lee in SEOUL, Leah Schnurr in NEW YORK, Stanley White in TOKYO, Aileen Wang in BEIJING; Writing by Neil Fullick; Editing by Alex Richardson)

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