China's
huge manufacturing engine stuttered in the early part of 2014 while positive signs
emerge from the Eurozone. Weaker-than-expected readings from China pointed to a contraction in the first
three months of the year but a solid expansion in both the euro zone's
manufacturing and services industries in March point to continued recovery in
the Eurozone.
China’s slowdown will raise market
expectations of government stimulus to arrest a loss of momentum in the world's
second-largest economy. China's flash Markit/HSBC Purchasing
Managers' Index (PMI) fell to an eight-month low of 48.1 in March from
February's final reading of 48.5. The index has been below 50 since January,
indicating a contraction in the sector this year.
Output and new orders
both weakened but new export orders grew for the first time in four months, the
survey showed, suggesting the slowdown has been driven primarily by weak
domestic demand.
Earlier this month,
sources told Reuters the central bank in Beijing was prepared to loosen
monetary policy in order to keep the economy growing at 7.5 percent. Last year,
China's economy grew 7.7 percent, the same pace as in 2012.
Premier Li Keqiang
said last week investment and construction plans
would be accelerated to ensure domestic demand expands at a stable rate.
Further signs of a
slowdown in China pushed European shares lower on Monday, although robust data
from France and Germany limited their decline.
The Eurozone showed
solid growth in its second-biggest economy France, meaning the bloc's recovery pace barely
slowed from February's 2-1/2-year high. But the threat of deflation in the
region was highlighted by surveyed firms' increasing willingness to cut prices
to attract customers.
The euro zone's
composite PMI, which is seen as a good growth indicator, edged down to 53.2
from February's 32-month high but Markit said it indicated a 0.5 percent
economic expansion this quarter, stronger than the 0.3 percent predicted in a
Reuters poll earlier this month.
Having lagged the
recovery in much of the euro zone in recent months, France's index surged
through the 50-point threshold to reach its highest level since August 2011,
while German composite figures showed growth slowed from February's 33-month
high but remained strong.
Inflation across the
currency union was just 0.7 percent in February, well below the European
Central Bank's 2 percent target ceiling, and the latest PMI will do little to
allay fears of deflation in the region.
A significant number
of economists have doubts about the ECB's view that deflation is not a threat
and that the recovery will take hold without any more policy action.
Finland's central
bank said on Monday inflation in the bloc could stay low for longer than
previously thought, potentially making it harder to rebalance the economy.
The ECB has little
room to maneuver, having already slashed its main interest rate to near zero
and given more than 1 trillion euros of cheap cash to banks for a three-year
period, and it held policy steady when it met earlier this month.