Global Manufacturing Picks Up as Europe’s Slump Eases: Economy

Global Manufacturing Picks Up as Europe’s Slump Eases
Robotic arms work on a row of Mini Cooper body shell's, by Bayerische Motoren Werke AG (BMW), as they pass along the production line at the company's Cowley plant in Oxford, U.K. Photographer: Chris Ratcliffe/Bloomberg

Global manufacturing picked up in January, with factory indexes from China to Germany and the U.S. showing growth.

Chinese manufacturing indexes rose as the world’s second-biggest economy withstood weaker exports driven by Europe’s debt crisis and a government-induced property slowdown. A U.S. gauge rose to the highest in seven months. In Germany, Europe’s largest economy, output grew for the first time since September. Manufacturing contracted less than initially estimated in the euro region.

“There are signs that the global economy, the global manufacturing cycle, is finding its feet,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “Things are no longer deteriorating. On the other hand, we’re not seeing signs of a sharp rebound. We’re not out of the woods yet in terms of the European economy at least.”

The strength of Germany’s economy has helped to soften the region’s economic slump as companies boost spending and output to meet export demand. The danger posed by the euro area’s debt crisis prompted the International Monetary Fund to cut its forecast for growth throughout the world and warn that the turmoil may threaten a global recession.

Five-Month High

A manufacturing gauge based on a survey of purchasing managers in the euro region rose to 48.8 from 46.9 in December, London-based Markit Economics said today. It had previously reported a gain to 48.7. A reading below 50 indicates contraction.

With today’s report adding to some signs of economic stabilization, Markit Chief Economist Chris Williamson said the region “may avoid a slide back into recession.”

The euro erased losses after the data were released, trading at $1.3192 at 5:44 p.m. in Brussels, up 0.8 percent. The Stoxx Europe 600 index was up 2 percent to 259.51.

Markit’s report that the euro-area manufacturing gauge reached a five-month high followed positive news from Asia. The official Chinese purchasing managers’ index increased to 50.5 from 50.3 in December, though the data may have been distorted by a weeklong holiday. A separate gauge from HSBC Holdings Plc and Markit rose to 48.8. India’s manufacturing grew at the fastest pace in eight months.

‘Soft-Landing Story’

“Today’s data further confirmed a soft-landing story for China,” said Ken Peng, a Beijing-based economist at BNP Paribas SA. “However, consumer demand may weaken after holiday effects disappear,” and global “uncertainties” and the Chinese government’s efforts to curb property prices “will continue to weigh on exports and industrial production,” he said.

In the U.S., the Institute for Supply Management’s factory index rose to 54.1 from 53.1 in December. The median estimate of 81 economists surveyed by Bloomberg News was 54.5. Readings greater than 50 signal growth. A separate report showed construction spending rose 1.5 percent in December.

Peter Loescher, chief executive officer of Siemens AG, Europe’s largest electrical engineering company, said in an interview on Jan. 24 that while he sees a “mild recession” in Europe, the U.S. is showing a “stable environment.”

“We clearly stick to the targets despite the fact that the real economy is impacted by the crisis in Europe,” he said. “The underlying business is still positive.”

New Orders

The German output gauge reached the highest in six months, while Austria also reported an expansion, Markit said. In the Netherlands, France, Ireland and Italy, the indicator showed a contraction last month. While a gauge of new export orders dropped for a seventh straight month in January, companies reported the weakest decline since July.

In the U.K., manufacturing returned to growth in January after shrinking in the previous three months, a report showed.

“Euro-area manufacturing has started 2012 surprisingly well,” Williamson said. “The concern is that new orders have yet to return to growth, even in Germany, suggesting that companies will be reluctant to expand capacity and take on more staff until signs of stronger demand have appeared.”

Job gains in Germany and France were offset by losses elsewhere, according to Markit. Companies in Greece and Spain eliminated jobs at the fastest pace, it said. European unemployment held at 10.4 percent in December.

“We are cautious about 2012 given the uncertainty in the global economy, and Europe in particular,” Frans van Houten, chief executive officer of Royal Philips Electronics NV, the world’s largest lightbulb maker based in Amsterdam, said on Jan. 30. “Europe is not a great place for growth right now.”

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