Bloomberg News

Indian, Chinese Manufacturing Gain as Europe Struggles: Economy

January 03, 2012

Jan. 2 (Bloomberg) -- Manufacturing expanded in India and China in December, indicating Asia’s fastest-growing major economies have so far withstood the fallout from Europe’s sovereign debt crisis.

India’s manufacturing grew at the fastest pace in six months, stoking inflationary pressure, and a Chinese manufacturing gauge rose by more than economists expected, suggesting that a slowdown in the world’s second-biggest economy may be stabilizing. In the euro area, output fell for a fifth month though the rate of decline eased slightly from November.

“The figures from today show we’re absolutely not seeing a hard landing,” said Andreas Rees, an economist at UniCredit Markets & Investment Banking in Munich. “There’s no massive uncertainty shock around the globe that’s weighing heavily on investment activity.”

Ripples from Europe’s debt turmoil have dented confidence among companies and consumers and hit global demand. The Organization for Economic Cooperation and Development said Nov. 30 that trade in goods stalled in most major economies in the third quarter and it cut its growth forecast.

In the U.S., the world’s largest economy, manufacturing probably increased last month. The Institute for Supply Management’s factory index climbed to a six-month high of 53.4 in December, economists surveyed by Bloomberg projected before a report tomorrow. Readings above 50 indicate expansion.

Euro Anniversary

American manufacturers also saw orders increase near the end of 2011. Bookings for factory goods climbed 2 percent in November, according to economists surveyed before a Jan. 4 report from the Commerce Department.

Spending on construction projects advanced 0.4 percent in November amid signs of improvement in the housing market, economists said ahead of figures from the Commerce Department tomorrow. That would be the fourth straight monthly gain, matching the longest streak since late 2010.

In the euro area, where leaders return to work this week seeking to rescue the single currency from fragmentation, a contraction in the manufacturing sector eased from November as an indicator of output in Germany, the region’s largest economy, reached a two-month high.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region rose to 46.9 from 46.4 in November, London-based Markit Economics said today. That’s in line with an initial estimate published on Dec. 15. A reading below 50 indicates contraction.

‘Another Recession’

“Euro-zone manufacturing is clearly undergoing another recession,” Chris Williamson, chief economist at Markit, said in today’s report. “Despite the rate of decline easing slightly in December, production appears to have been collapsing across the single-currency area at a quarterly rate of approximately 1.5% in the final quarter of 2011.”

Williamson said new orders are falling at a “far faster rate” than manufacturers have been cutting output. Companies “have been reliant on orders placed earlier in the year to sustain current production levels,” he said. “This is particularly evident in Germany, and suggests that operating capacity will be slashed in coming months unless demand revives.”

Indian manufacturing surged even as global demand slowed. The Purchasing Managers’ Index rose to 54.2 in December from 51 in November, HSBC Holdings Plc and Markit said in an e-mailed statement. Domestic demand helped the PMI in India to bounce back, they said, adding that growth will be constrained by higher borrowing costs and global economic weakness.

‘No Room’

Production growth increased inflationary pressure, leaving “no room” for India’s central bank “to ease its tight monetary policy stance in the near term,” Leif Eskesen, a Singapore-based economist at HSBC, said in the statement.

In China, the purchasing managers’ index rose to 50.3 from 49 in November, the Beijing-based logistics federation said. The reading exceeded all forecasts in a Bloomberg News survey of 15 analysts where the median estimate was 49.1.

Two reports yesterday highlighted the toll that faltering global growth may take on Asia. In the Chinese data, an index of export orders indicated a third month of contraction, while South Korea forecast that its own overseas shipments will grow in 2012 at only about a third of last year’s pace.

“Europe’s debt woes, the austerity measures the European countries are taking and the sluggish U.S. recovery mean demand for Asian goods this year is likely to be weak, posing a downside risk,” said Yao Wei, a Hong Kong-based economist for Societe Generale SA.

--With assistance from Jeff Black in Frankfurt, Victoria Ruan and Zheng Lifei in Beijing, Unni Krishnan in New Delhi, Timothy R. Homan in Washington and Patrick Donahue in Berlin. Editors: Jeffrey Donovan, Jones Hayden

To contact the reporter on this story: Patrick Henry in Brussels at phenry8@bloomberg.net

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


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