European factories buoyant but weak Asia adds to stimulus calls

Wed Apr 1, 2015 5:55am EDT
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By Jonathan Cable and Ian Chua

(Reuters) - Companies struggled in China and much of the rest of Asia in March, suggesting central banks may have to resort to more stimulus, just as factories in the euro zone begin to reap rewards from ultra-easy policy there.

Any indication of recovery will delight the European Central Bank which embarked on a quantitative easing programme in March, aiming to buy around 60 billion euros of bonds every month to drive up inflation and spur the recovery.

But three separate surveys of China's factory and services sectors released on Wednesday showed stubborn weakness in the world's second-biggest economy, putting the government's newly minted growth target of around 7 percent for the year at risk.

"The Chinese numbers don't look too bad but our guess is that the People's Bank of China will ease again. Another cut in interest rates might be on the cards," said Philip Shaw, chief economist at Investec.

"The recent numbers from the euro zone have suggested that the acuteness of the crisis has eased but there remains more work to be done."

Markit's final March manufacturing Purchasing Managers' Index (PMI) for the euro zone was at a ten-month high of 52.2, up from 51.0 in February and the 21st month in a row it has been above the 50 mark that separates growth from contraction.

Growing demand for exports helped drive the output index -- which feeds into a composite PMI due on Tuesday that is seen as good growth indicator -- to a ten-month high.

Speculation QE was coming from the ECB, and its eventual launch, has sent the euro EUR= down around 12 percent since January and factories have benefited as it has not only made exports cheaper but also meant competing imports were more expensive.   Continued...

Employees assemble electronic components along a production line at a factory in Hefei, Anhui province, January 18, 2015. REUTERS/Stringer