Business growth flagged in China, recession dragged on euro zone companies, and even US corporate growth slowed in April, according to surveys that bucked a stronger trend in US jobs data. Monday's European purchasing managers indexes (PMIs) suggested the euro zone is on course for a worse downturn in the current quarter, with Germany now suffering a contraction in business activity that has long dogged France, Italy and Spain.
In China, the survey covering services from banks to hotels showed April's growth was the weakest since August 2011, while a US PMI on Friday put growth at its slowest in nine months. However, Friday's main US payrolls release has bolstered an overall view of US resilience, in sharp contrast to Monday's European data showing the euro zone dogged by recession as its sovereign debtors struggle to control their finances.
"Fiscal tightening, unemployment fears and, in some cases, housing wealth losses are clearly still taking their toll on consumer spending intentions," said Martin van Vliet, senior economist at ING. "That said, with the European Commission finally engineering a slower pace of fiscal austerity across the region and the European Central Bank providing fresh monetary stimulus, the outlook for consumer spending should improve as the year progresses."
Markit's Eurozone Composite PMI, which gauges activity across thousands of companies and is seen as a good gauge of economic conditions, edged up in April to 46.9 from 46.5 in March, marking an improvement on an initial reading of 46.5. But the index has now been below the watershed 50 level that divides growth from contraction for over a year, and April's reading was far lower than those seen in January and February.
Markit, which compiles the PMI, said the survey was broadly consistent with gross domestic product falling at a quarterly rate of 0.4-0.5 percent. The first reading of the euro zone's economic performance between January and March comes out next Wednesday, and economists polled by Reuters estimate output fell 0.2 percent.
Official data on Monday showed euro zone retail sales fell 0.1 percent in March, while Sentix's economic sentiment index showed a slight improvement in the euro zone - but like the PMIs, a worsening in Germany. "(The PMI) keeps open the possibility that the European Central Bank could eventually take interest rates lower still," said Howard Archer, chief UK and European economist at IHS Global Insight.
ECB Executive Board member Benoit Coeure said on Saturday that was a possibility, even after the bank cut its main refinancing rate to a new record low 0.5 percent on Thursday, if economic indicators deteriorate further. In China, service sector growth in slowed in April to its lowest point since August 2011, in fresh evidence of risks to a revival in the world's second biggest economy. The HSBC services Purchasing Managers' Index (PMI) fell to 51.1 in April from 54.3 in March, with new order expansion the slowest in 20 months and staffing levels in the service sector decreasing for the first time since January 2009.
The closely-watched official government Chinese PMIs also showed slowing growth last week in both servicess and manufacturing companies "The weak HSBC service PMI figure provides further evidence of a slowdown not only in the factory sector but also in the service sector," said Zhang Zhiwei, chief China economist at Nomura Securities in Hong Kong.
"This confirms our worries about insufficient growth momentum in the economy, which we expect to slow to 7.5 percent in the second quarter." The HSBC survey showed a sub-index measuring new business orders dropped sharply to a 20-month low of 51.5 in April, with only 15 percent of survey respondents reporting increased new orders that month, HSBC said. "This (has) started to bite employment growth. All these are likely to add some risk to China's growth in the second quarter, as there's still a bumpy road towards sustaining growth recovery," said HSBC's China chief economist Qu Hongbin.
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