Euro zone bounces back to growth as China stalls

Wed Jul 24, 2013 6:04am EDT
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By Jonathan Cable and Langi Chiang

LONDON/BEIJING (Reuters) - Euro zone private industry unexpectedly bounced back to growth this month but its recovery risks being derailed as China's huge manufacturing engine is losing steam, surveys suggested on Wednesday.

The euro zone results will provide welcome reading for European Central Bank policymakers who have promised to do whatever it takes to help the economy emerge from the longest recession in its history.

But while European manufacturers boosted the private sector back to growth in July for the first time in more than a year and a half, China's factories lost further momentum, boding ill for those exposed to the world's second-largest economy.

"China's slowdown is starting to become more dangerous," said Yasuo Yamamoto, a senior economist at Mizuho Research Institute in Tokyo.

Knock-on effects are already being felt widely - from a slowdown in Japanese export growth despite a weaker yen, to Apple (AAPL.O: Quote) lamenting a rare drop in Chinese demand for its premium brand of products.

Still, Markit's flash Eurozone Composite PMI, based on surveys of thousands of companies across the region and a reliable indicator of growth, jumped to an 18-month high of 50.4 in July from 48.7 in June.

That smashed even the most optimistic forecast in a Reuters poll and is the first month the PMI has been above the 50 mark that divides growth and contraction since January 2012.

The upbeat surveys come after official data showed French industrial morale was at its highest in over a year in July while Italian retail sales rose on a monthly basis for the first time in 14 months.   Continued...

Cars and containers are pictured at a shipping terminal in the harbour of the German northern town of Bremerhaven, late October 8, 2012. REUTERS/Fabian Bimmer