Shaky Euro zone, China sound warnings for global growth

Japan shows surprisingly strong growth in exports in October

Surveys sounded warning bells for the global economy on Thursday as euro zone businesses grew less quickly than any forecaster expected and China's factories lost momentum.

The downbeat data, alongside evidence of further price-cutting, will add to calls for more policy action from the European Central Bank, while the first drop in Chinese manufacturing output for six months will heap similar pressure on authorities in Beijing.

"It does reinforce the case for quantitative easing from the European Central Bank," said Alan Clarke, European economist at Scotiabank, of the euro zone PMIs.

Markit's Composite Flash Purchasing Managers' Index for November, based on surveys of thousands of companies and seen as a good growth indicator, fell to 51.4, missing even the lowest forecast in a Reuters poll.

The service industry PMI also undershot all forecasts by falling to 51.3, while the factory PMI's dip to 50.4 missed consensus. However, all three readings held above the 50 mark that separates growth from contraction.

Markit said the PMI pointed to 0.1-0.2 per cent GDP growth in the euro zone in the current quarter, compared with the 0.2 per cent forecast in a Reuters poll taken last week.

"November's fall in the euro zone composite PMI is a serious blow to hopes that the recovery would resume towards the end of the year," said Jennifer McKeown, senior European economist at Capital Economics.

Forward-looking indicators suggest the situation is unlikely to improve anytime soon.

The composite new orders index fell below 50 for the first time since July 2013, and factories, which barely increased staffing levels, ran down old orders faster than last month.

But likely of greatest concern for the ECB, which is facing the spectre of deflation, service firms cut prices they charge again, as they have done ever since late-2011.

Euro zone prices rose 0.4 per cent in October, well below the ECB's target of just under 2 per cent and stuck firmly in what it terms the inflation danger zone.

To keep the region from slipping into deflation, the ECB has been pumping money into the banking system by buying covered bonds and offering cheap long-term loans to banks.

The chances it takes the plunge and buys sovereign bonds are now 50-50, a Reuters poll found.

Outside the euro zone, British retail sales grew much more strongly than expected in October, giving further evidence the UK economy is leaving the euro zone's in its wake. A US flash PMI due later also is expected to show activity picked up in the world's largest economy.

There was also rare glimpse of good news from Japan, which reported surprisingly strong growth in exports for October, a shift that should get a further boost from the latest dive in the yen.

Brittle China
In China, the world's second biggest economy, the HSBC/Markit manufacturing PMI reading showed a drop to a six-month low of 50.0 in November. The factory output sub-index fell to 49.5, its first contraction since May.

A cooling property market, erratic foreign demand and overcapacity have weighed on its manufacturers and the broader economy this year despite a steady stream of stimulus measures.

China's annual growth slowed to 7.3 per cent in the third quarter, leaving 2014 on track to be the slowest in 24 years.

"We still see uncertainties in the months ahead from the property market and on the export front. We think more monetary and fiscal easing measures should be deployed," said Hongbin Qu, chief China economist at HSBC.

The Markit/JMMA version of Japan's PMI was more mixed. While the headline index edged down to 52.1 in November, from 52.4 in October, output expanded at its fastest clip in eight months.

Firms may have been responding to better offshore demand as exports soared, reflecting a weaker yen.

Policymakers were taken by surprise earlier this week when data showed the economy fell into recession in the third quarter, underlining the necessity of the Bank of Japan's super-loose policy and sending the yen to fresh lows.