China stabilizes, euro zone struggles on

Tue Jul 24, 2012 7:00am EDT
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By Jonathan Cable and Nick Edwards

LONDON/BEIJING (Reuters) - The troubled euro zone's private sector looks set for many months of more pain, July business surveys showed on Tuesday, contrasting with Chinese manufacturers reporting a pick-up in output and signs of stabilization in new export orders.

In a further blow to policymakers battling Europe's raging debt crisis -- with Spain now firmly in the bailout spotlight -- the downturn that began in the euro zone's smaller economies has now become entrenched in core countries Germany and France.

The 17-nation euro zone's private sector economy shrank for a sixth month in July. Manufacturing output nosedived, particularly in Germany, making another official recession likely.

Markit's Eurozone Composite PMI, which combines the services and manufacturing sectors and is as a good guide to overall growth, held steady at 46.4, but manufacturing was dire and forward-looking indicators were grim.

The news from China, now one of the world's main economic drivers and the subject of concerns about a harsh slow down, was relatively upbeat, even if it still indicated a contraction.

HSBC's Flash China manufacturing purchasing managers index (PMI) rose to 49.5 in July from 48.2 in June, closer to the 50 level that divides expansion from contraction. The increase was driven by a jump in the output sub-index to 51.2 - the best showing since October 2011.

It was the first significant set of Chinese data in the third quarter and suggested a series of policy measures, including interest rate cuts, may be starting to work.

"(The PMI) adds to recent signs of stabilization of the Chinese economy, thus underpinning our view that the slowdown in activity will bottom out over the summer months," said Nikolaus Keis at UniCredit.   Continued...

Employees work at a factory in the Shanghai Lingang Industrial Park in Shanghai, April 20, 2012. REUTERS/Aly Song