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World Manufacturing Ends 2013 on Strong Note

Thursday, 02 January 2014 08:47 AM

Global manufacturing ended 2013 on a strong note as major exporters like Japan, Germany and Italy posted their fastest growth in years, although China's performance remained modest, surveys showed on Thursday.

Years of loose monetary policy, along with soaring stock markets, appear to be bolstering economic confidence. That bodes well for a global economy that has struggled to shake off the effects of financial crisis and recession.

Eurozone manufacturing grew at the fastest rate since mid- 2011 in December on brisk business in Germany and Italy, Markit Purchasing Managers' Indexes (PMIs) showed.

Add in the fastest growth in 7 1/2 years for Japanese manufacturing and no major slowdown in Chinese manufacturing output, and the stage is being set for a solid start to the year.

"Looking ahead, the hope for the eurozone is that recent improved confidence will encourage businesses to lift their employment and investment plans as 2014 progresses, and will also encourage consumers to spend more," said Howard Archer, the chief European and U.K. economist at IHS Global Insight.

Markit's Eurozone manufacturing PMI rose to 52.7 in December from 51.6 in November, above the 50 threshold for growth.

While business is showing signs of life, unemployment in many eurozone countries, particularly among young people, remains high. However, the PMIs showed almost two years of job cuts across eurozone factories nearly ended last month.

Manufacturing appears to reviving in several eurozone countries that have struggled since the sovereign debt crisis broke out more than four years ago. Factory activity expanded slightly in Spain. Irish manufacturing clocked a seventh month of growth. Even Greek manufacturing activity grew.

In Germany, Europe's biggest economy, manufacturing grew at its fastest pace since mid-2011, with its PMI rising to 54.3 from 52.7. The Dutch posted their fastest rate in more than two years.

But the eurozone's No. 2 economy, France, is still lagging. Its PMI fell sharply to 47.0 from 48.4, a seven-month low, marking faster contraction as the year drew to a close.

Chris Williamson, the chief economist at Markit, noted that eurozone manufacturers have begun raising prices, suggesting some strengthening in almost non-existent pricing power.

Weak eurozone inflation, at just 0.9 percent in November, has worried policymakers at the European Central Bank. The latest PMIs suggest disinflation among manufacturers, at least, may be ending.

"It seems likely that the manufacturing sector will help drive a meaningful, albeit still modest, recovery in the wider economy," Williamson said.

The mood in the eurozone was further boosted last month with news Ireland emerged from its international bailout, while posting fast economic growth in the third quarter.

In Britain, which in the last several months has been outperforming the euro economies, the manufacturing PMI unexpectedly slipped to 57.3 from 58.1. Even so, manufacturing output probably grew by 1 percent in the fourth quarter alone, according to Markit.

A similar report from the U.S. is expected at 1358 GMT, followed by the more closely watched Institute for Supply Management PMI at 1500 GMT. A Reuters poll of economists predicted a slight dip to 57.0 in December from 57.3.


In Asia, performance was a bit more mixed. Already lackluster output slowed in India, owing mainly to weak domestic demand. But orders from abroad picked up.

"The most striking feature of today's PMIs was the rise in the output component recorded everywhere but India," wrote Krystal Tan, Asia economist at consultancy Capital Economics.

The HSBC/Markit PMI for China slipped to a three-month low of 50.5 in December, consistent with a dip in the official government PMI to a four-month low of 51.0.

Capital Economics' Tan noted that new orders growth in Asia, while not as strong as output, was better for most economies than it was just a few months ago.

"This fits with our view that the region's manufacturing sectors are on a gradual road to recovery, supported by loose monetary policy and strengthening external demand."

The PMIs for South Korea and Indonesia, important emerging economies in Asia, both rose in December but remained at relatively low levels.

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Global manufacturing ended 2013 on a strong note as major exporters like Japan, Germany and Italy posted their fastest growth in years, although China's performance remained modest, surveys showed on Thursday.
Thursday, 02 January 2014 08:47 AM
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