Euro zone business stays strong, China mending

Thu May 22, 2014 8:00am EDT
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By Jonathan Cable and Koh Gui Qing

LONDON/BEIJING (Reuters) - Private business activity in the euro zone grew at just under its fastest pace in three years this month, while contraction in China's vast manufacturing sector slowed to its weakest pace this year, surveys showed on Thursday.

But in Europe, only drastic price cuts helped stop a further slide, after a sharp slowdown in factory growth took the shine off an unexpected pickup in the service industry. The slowdown kept alive worries about dangerously low inflation.

"Overall, the data is a bit of a relief after disappointing first quarter figures," said Christian Schulz, senior economist at Berenberg Bank.

"In China, the authorities are doing something and the economy is responding. (But) the European Central Bank is worried because it looks like inflation will stay low for a long period of time."

Markit's Composite Purchasing Managers' Index for the currency bloc, seen as a good indicator of growth, edged down to 53.9 from a near three-year high of 54.0 in April, matching the consensus forecast in a Reuters poll of analysts.

Readings above 50 indicate expansion, and Markit said the index pointed to second-quarter economic growth of 0.5 percent, which would be the strongest in three years, and better than the 0.3 percent predicted in a Reuters poll on Wednesday.

European stocks and government bonds rose after the data were released on Thursday.

But the data also revealed the biggest split between the euro zone's two largest economies since February. France contracted while Germany bounded ahead, although led by services rather than manufacturing.   Continued...

A workers walks in the factory inside the Glaeserne Manufaktur (transparent factory) where Germany's car maker Volkswagen AG assemble the luxury model Phaeton, in Dresden May 14, 2013. REUTERS/Fabrizio Bensch