Euro-area factory output expanded faster than economists forecast in January and a gauge in China signaled a surprise drop in manufacturing, highlighting the uneven nature of the global recovery.
A euro-area manufacturing index increased to 53.9 from 52.7 in December, Markit Economics said in a statement today. That exceeded the median estimate of 53 in a Bloomberg News survey of 39 economists. A Chinese gauge dropped to 49.6 from 50.5, weaker than even the most pessimistic forecast in a survey. A number below 50 indicates contraction.
Asian stocks fell and Treasuries rose after the report from China. The drop in the index may reinforce the view in the Bloomberg Global Poll published this week that showed China’s slowing economy as the biggest concern among investors. That poll also indicated growing optimism about the U.S. and euro-area economies.
“The momentum is clearly with advanced markets,” Christian Schulz, an economist at Berenberg Bank in London, said in a telephone interview. “Whereas emerging markets, which have had a strong run over the past couple of years, are now back to reality. There are many vulnerabilities in emerging markets that are now being uncovered as cheap money flows are fading.”
Markit’s services Purchasing Managers Index for the euro area rose to 51.9 this month from 51 in December. A composite of both manufacturing and services increased to 53.2 from 52.1.
U.S. manufacturing also probably strengthened this month, economists said before another report from Markit later today. The gauge for the world’s largest economy increased to 55 from 54.4, according to the median of 21 estimates.
Today’s euro-area manufacturing data add to encouraging signs that the region’s nascent recovery is strengthening. Economic confidence improved in December to the highest level since July 2011, and industrial production increased an annual 3 percent in November. The European Central Bank forecasts 1.1 percent economic growth in the euro zone this year, accelerating to 1.5 percent in 2015.
In Germany, Europe’s largest economy, factory output surged to a 32-month high in January, “with companies reporting sharp and accelerated growth of output and new orders,” Markit said. A French gauge rose to a three-month high.
“Europe’s economy is growing again and its recovery is now spreading from exports to domestic demand too,” ECB President Mario Draghi said in an interview with the Neue Zuercher Zeitung published today.
“The survey data are strong, but we don’t yet have a continuous stream of strong hard data,” he said. “That’s a familiar pattern in economic recoveries after a deep crisis.”
Harvard University Professor Kenneth Rogoff said in a Bloomberg Television interview in Davos that while the world economy shows signs of improvement, the financial crisis hasn’t been fully overcome yet.
“Crises do end eventually,” he said. “Maybe we are starting to move away although it is still a long way from full recovery.”
Seventy-two percent in the Bloomberg global survey published on Jan. 21 said the U.S. economy is improving, up from 53 percent a year ago. Forty nine percent said the same of the euro zone, a tripling since last January and the most since the question was first asked in September 2011.
By contrast, just 13 percent of those surveyed said China’s economy is improving, with 36 percent saying it is deteriorating, although almost half said it’s stable.
Signs in the PMI of a contraction don’t indicate that manufacturing is shrinking on an annual basis. Factory output rose 9.7 percent in December from a year earlier, compared with a 10 percent pace in November, data showed this week. Bank of America Corp. also cautioned that the PMI may have been distorted by workers’ holidays ahead of the Lunar New Year.
The MSCI Asia Pacific Index dropped 1.1 percent today. Treasuries rose for the first day this week, pushing the 10-year yield down 2 basis points to 2.85 percent.
While the euro area has seen an accumulation of encouraging economic news, it’s still struggling with the legacy of the debt crisis, including an unemployment rate of 12.1 percent. Gross domestic product probably rose 0.2 percent in the fourth quarter after a 0.1 percent increase in the previous three months, according to a Bloomberg survey.
The euro-area recovery “will continue and gradually firm,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “But it’s a slow process and overall the pace of growth is not very impressive.”
Even with gradual growth, price pressures within the 18-member currency bloc remain weak. Earlier this month, Draghi strengthened his pledge to keep interest rates low for as long as necessary and warned that it’s too soon to say the euro zone is out of danger.