Asian factories soften; Europe stays buoyant

london — Factories across much of Asia ran into a soft patch in May as export demand slowed but those in Europe enjoyed buoyant growth amid signs of steady improvement in the global economy.

Analysts said the weakness in Asia was likely to be temporary and the findings from private business surveys came a day after Moody’s Investors Service painted an upbeat picture of global growth.

IHS Markit’s Manufacturing Purchasing Managers’ Index for the eurozone rose to 57.0 in May, up from April’s 56.7 and its highest level since April 2011. A reading above 50 indicates growth.

Germany, Europe’s largest economy, led the charge, but IHS Markit said solid upturns were recorded in other countries as well. France lagged behind but is still enjoying its best quarter for six years.

As the bloc’s economic performance improves, the ECB will sound a little more optimistic at its June 8 meeting, possibly raising its risks assessment to balanced or discussing removing its bias to ease policy, a Reuters poll of economists showed.

Across the Channel, Britain’s factory PMI slipped to 56.7 from a three-year high in April. But aside from the previous month’s PMI, that was its strongest reading since June 2014.

Earlier readings added to signs Asian economies generally remained buoyant in the second quarter, with manufacturing activity continuing to improve — albeit at a more modest pace — and business confidence remaining strong overall.

Still, there were mixed readings on regional powerhouse China, with official data showing steady growth fuelled by a construction boom but a private survey pointing to the first contraction in activity in 11 months.

After battling a multi-year trade recession, Asian exports have seen a strong rebound this year, often led by electronics. The tailwinds from Chinese commodities and tech products demand, however, appear to be fading.

Data from Japan backed that assessment as manufacturing activity grew at its fastest pace in three months in May.

On Wednesday, Moody’s said G20 economies, which account for 78 per cent of the global economy, is expected to grow 3.1 per cent on year in 2017 and 2018, faster than 2.6 per cent growth last year.

The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI), which tends to focus on China’s smaller firms, fell to 49.6 in May. — Reuters