London/Beijing: Manufacturers in China and India cranked up the pace of production last month and Germany and France led the way in Europe, offering a boost to the global economy in spite of a spreading euro zone debt crisis.
But while strong numbers from the largest European economies provide good news for policymakers worried about the sovereign debt crisis in Europe’s single currency bloc, they highlighted a growing divergence among its members.
Data from Germany showed its manufacturing sector expanded significantly faster last month than in October while France’s PMI bounced to a level not seen in 10 years.
Italian numbers showed conditions improved at their weakest rate for nine months, however, and Spanish manufacturing stagnated.
Ireland, which accepted an €85-billion European Union emergency aid package on Sunday, saw a slight upturn in activity but still below levels needed for a meaningful recovery and Greek manufacturing activity contracted as it has done for the past 15 months.
“It is worrying to see Italian activity lose momentum in addition to ongoing weak activity in Spain, Ireland and, especially, Greece,” said Howard Archer at IHS Global Insight.
The Irish bailout has failed to reassure investors and global officials are also focusing on the problem, with the G20 deputy finance ministers holding a teleconference about it on Monday and a top US Treasury official travelling to Europe.
European policymakers came out in force on Tuesday to try to calm markets, with European Central Bank President Jean-Claude Trichet warning that pundits were underestimating the determination of governments to keep the euro zone stable.
But markets paid little attention, targeting Portugal, Spain and Italy only days after the EU came to Ireland’s aid.
Outside the euro zone, British manufacturing activity leapt unexpectedly to a 16-year high in November.
Asian growth ... and inflation?
For all the maelstrom in Europe, there is little sign it is derailing global economic recovery, driven by Asian powerhouses.
Signs of robust growth in China helped lift world stocks on Wednesday while the euro halted its recent slide.
Two Chinese purchasing managers’ indexes registered their strongest readings in seven months and the story was similar in India, where the HSBC Markit PMI climbed to a six-month high.
But the surveys also highlighted a worry for investors: rising inflationary pressure in China and India and the need for more monetary tightening in economies which have driven a large part of the global recovery.
That, rather than Europe’s debt troubles, could pose the biggest threat to global economic growth.
“Good news from the economy may not be that good for the market as it is concerned about more tightening,” said Ting Lu, an economist with Bank of America-Merrill Lynch.
“The high PMI reading could convince Beijing to tighten a bit more on the margin.”
China raised interest rates in October for the first time in nearly three years and most analysts still expect 2-4 more increases by the end of next year although for now it is focusing on raising banks’ required reserves to drain excess cash from the economy and prevent inflation taking off.
India has already raised interest rates six times this year and its strong PMI followed data on Tuesday that showed its economy grew by a blistering 8.9%in the September quarter from a year earlier.
That is likely to add pressure on the central bank to continue raising rates, though traders do not expect another hike until early next year.
Thailand’s central bank surprised financial markets on Wednesday by raising its benchmark interest rate, while the Reserve Bank of Australia raised rates earlier this month.
Attempts to rein in runaway growth in Asia could be a bitter pill to swallow with Europe teetering on the brink of more serious debt troubles and the United States showing only tentative signs of picking up.
The Institute for Supply Management is expected to say later on Wednesday that the pace of manufacturing growth in the US, the world’s biggest economy, tailed off last month.
And in Japan, the picture is bleak.
Prolonged economic weakness may keep Japan in deflation longer than the Bank of Japan’s current forecast, a member of its policy board said on Wednesday, offering the bleakest view to date by a central bank policymaker.
Board member Miyako Suda said there was a strong chance Japan’s economy would contract in the final quarter of this year after strong growth in July-September.