China accelerates as euro zone stumbles

Mon Jun 2, 2014 6:41am EDT
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By Jonathan Cable and Aileen Wang

LONDON/BEIJING(Reuters) - Signs of an economic revival in China have raised hopes that Beijing's targeted measures to bolster growth are having an impact but a slowdown in the euro zone will increase expectations of policy easing there.

Chinese factory activity expanded at the fastest pace in five months in May but euro zone manufacturing growth slowed more than initially thought, fuelling expectations that the European Central Bank will ease policy this week.

"The Chinese numbers were fractionally higher. We are beginning to make some progress but it is consistent with this story that the Chinese economy is not going to grow as fast as it has in the past," said Peter Dixon at Commerzbank.

"The European numbers were in and around the ballpark. It's not the kind of data the ECB is going to react to instantly but it is part of a bigger puzzle that says we need more growth in Europe."

U.S. manufacturing growth probably accelerated in May, a report from the Institute for Supply Management (ISM) is expected to show later on Monday.

Markit's final Manufacturing Purchasing Managers' Index (PMI) for the euro zone slipped to a six-month low of 52.2 in May from April's 53.4 as strong figures from Germany failed to offset a contraction in activity in France.

The final number was below the initial reading of 52.5 but held above the 50 mark that separates growth from contraction for the 11th straight month. A subindex measuring output sank to 54.3 from 56.5, weaker than the initial reading of 54.7.

"The slowdown in euro zone manufacturing activity in May reinforces belief that the ECB will deliver a package of measures at its 5 June policy meeting," said Howard Archer at IHS Global Insight.   Continued...

A labourer paints antirust oil on vehicle at a factory in Wuhan, capital of central China's Hubei province January 26, 2007. CHINA OUT REUTERS/Stringer