Bloomberg News

Global Manufacturing Clings to Growth Amid Slump in Europe

October 03, 2011

Oct. 3 (Bloomberg) -- Manufacturing in China and the U.K. expanded last month while production in the euro region contracted less than initially estimated, suggesting the global economy may be weathering fallout from Europe’s debt crisis.

A U.K. manufacturing index unexpectedly increased in September from the previous month, while an indicator of euro- region output dropped less than initially reported, London-based Markit Economics said in separate reports today. In China, output growth accelerated last month.

European leaders are struggling to counter the region’s fiscal crisis, which threatens to hurt global economic growth. While brighter production data may ease investor concerns about a renewed recession, risks to growth are adding to the case for policy makers to provide more stimulus. U.S. manufacturing probably grew at the weakest in more than two years last month.

“The data have been mixed,” said Azad Zangana, an economist at Schroder Investment Management in London. “While there’s been a deterioration across Europe, in the U.K. there’s been a nice turnaround. If we are bumping along the bottom, this could be one of the bumps.”

Luxembourg Meeting

The Institute for Supply Managements’ factory index probably fell to 50.3 from 50.6 in August, according to a Bloomberg News survey. The Tempe, Arizona-based ISM will publish its report at 10 a.m. New York time.

In the 17-nation euro region, a manufacturing gauge fell to 48.5 from 49 in August. That’s above an initial estimate of 48.4 published on Sept. 22. The gauge for the U.K. rose to 51.1 from 49.4, reflecting attempts by producers to clear order backlogs. Readings below 50 indicate contraction.

Euro-area finance ministers are gathering in Luxembourg today to consider a boost to the region’s bailout fund as they weigh the threat of a Greek default. About three-quarters of global investors surveyed by Bloomberg last month forecast the region to slip into a recession over the coming year, with more than half projecting worsening financial turmoil.

Contagion risks have already prompted some policy makers to take action. The U.S. Federal Reserve will start “Operation Twist” today, a move to replace its short-dated government debt holdings with bonds of longer maturity in a bid to lower borrowing costs and stimulate the economy.

The European Central Bank will probably hold its benchmark interest rate at 1.5 percent when council members meet on Oct. 6, a Bloomberg survey shows. The Bank of England the same day may also keep its key rate at a record low of 0.5 percent. While a separate survey shows the central bank may keep its bond plan at 200 billion pounds ($311 billion), some economists say policy makers will boost the program.

“A lot of Western economies are going through fiscal consolidation that has suppressed demand and they’ve been relying on export growth to see them through,” said Jonathan Loynes, an economist at Capital Economics in London. “That’s now looking less likely and it puts policy loosening back on the agenda. We may not see it this week, but it will come very soon.”

--Editors: Simone Meier, Jones Hayden

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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