June 1, 2015 / 10:05 AM / 4 years ago

Sluggish factory growth puts central bank stimulus in spotlight

LONDON (Reuters) - Manufacturing activity showed few signs of picking up across Europe, Asia or the Americas in May as demand stayed stubbornly weak, highlighting the need for central banks to continue supporting economic growth.

An employee works on the automobile assembly line of a Renault Clio IV at the Renault automobile factory in Flins, west of Paris, France, May 5, 2015. REUTERS/Benoit Tessier

The gloomy business surveys come a little less than three months after the European Central Bank embarked on a 1-trillion-euro stimulus programme, and will likely fuel expectations its counterpart in Beijing will have to roll out more aggressive policy measures.

Euro zone factory growth was weaker than previously thought last month, while Chinese factory activity barely accelerated, and U.S. manufacturing activity growth slowed.

A measure of global manufacturing growth showed activity accelerated slightly last month but remained weak as firms around the world focused on existing orders.

“Across the euro zone as a whole it is plodding along. We can probably do with a little bit more strength out of Germany and France,” said Peter Dixon at Commerzbank.

“We are going to have to live with rather slower growth in China. We have seen some modest monetary easing and I expect that will continue.”

The May final manufacturing purchasing manager’s index (PMI) from private data vendor Markit for the euro zone was 52.2, below a preliminary reading of 52.3 and just ahead of April’s 52.0.

Worryingly for the ECB, the region’s top two economies struggled. German factory growth slowed to a three-month low and French manufacturing activity, though improving, still contracted.

But Spanish manufacturing grew at its fastest rate in over eight years and Italian factory output hit a four-year high.

The Markit/CIPS manufacturing PMI for Britain, outside the common currency area, rose to 52.0 from a downwardly revised 51.8 in April, weaker than forecast.

JPMorgan’s Global Manufacturing Purchasing Managers’ Index (PMI), produced with Markit, nudged up to 51.2 in May from April’s near two-year low of 51.0.


China’s official manufacturing PMI edged up in May but a private survey focusing on small and mid-sized firms showed their activity contracted for a third straight month.

Both indexes are hovering around 50, pointing to very subdued activity at best. And both showed a further contraction in export orders was prompting factories to shed workers.

A separate survey showed growth in China’s services industry, which had been the lone bright spot in the economy, cooled.

“We believe risks to the outlook remain to the downside,” analysts at Barclays wrote in a note.

China’s central bank has already cut interest rates three times in six months and is widely expected to ease policy further in coming months.

“The economy sees little sign of a pick-up,” HSBC economists said. “We forecast more aggressive policy easing, including a 50-basis-point reserve ratio cut in the coming weeks.”

The picture in neighbouring Japan appeared slightly better, with the Markit/JMMA final PMI reading at 50.9.


Growth in the U.S. manufacturing sector slowed very slightly in May, as a deceleration in new orders offset an improvement in employment, according to Markit.

The final U.S. Manufacturing PMI was 54.0 in May, little changed from 54.1 in April.

“With manufacturers reporting the smallest rise in new orders since the start of last year, the survey provides further evidence that the strong dollar is hurting the economy,” said Chris Williamson, chief economist at Markit. “While the economy still looks set to rebound from the decline seen in the first quarter, the extent of the second quarter recovery therefore remains highly uncertain and could well disappoint.”

However, a separate survey from the U.S. Institute of Supply Management showed the pace of U.S. manufacturing growth rose in May. ISM’s index of national factory activity was 52.8, up from April’s reading of 51.5, which had tied with March’s figure as the lowest since May 2013.

In Canada manufacturing sector, activity contracted in May for a fourth straight month as new orders and employment remained soft.

The Markit/RBC PMI edged up to a seasonally adjusted 49.8 last month from 49.0 in April but the index has been below the 50 mark that indicates growth in the sector since February.

Activity in Brazil’s floundering manufacturing sector contracted at its sharpest pace in almost four years in May, furthering expectations that Latin America’s largest economy is settling deeper into a painful recession.

The Markit/HSBC Brazilian manufacturing PMI fell to a seasonally adjusted 45.9 in May from 46.0 in April.

Persistently high inflation rates and higher import costs due to a depreciating local currency have weighed on Brazilian companies’ competitiveness. Meanwhile, dropping consumer confidence continues to fuel pessimism among businesses.

Mexico’s manufacturing sector sentiment also slipped in May to a seven-month low as output dipped, but there were signs of strong new export orders helped by a weak peso.

The Markit/HSBC Mexico Manufacturing PMI dipped to 53.3, its lowest since October and down from 53.8 in April.

Mexico’s peso hit a record low in March and has recovered only slightly. A slump in oil prices and expectations of higher interest rates in the United States have hammered Mexico’s currency since last year.

(For a graphic on euro zone PMI momentum: link.reuters.com/har72w

For a comparison of euro zone PMIs: link.reuters.com/xup22v)

Additional reporting by Ian Chua, David Milliken, Koh Gui Qing, Stanley White, and Ryan Vlastelica; Editing by Clive McKeef and Meredith Mazzilli

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