Europe’s floundering economy probably perked up in January, although sharply slowing growth among Chinese services companies suggests the world economy started 2012 in mixed form, according to business surveys on Friday.
Still, there were plenty of bright spots from Friday’s series of purchasing managers indexes (PMIs), which measure changes in the activities of companies all over the world.
Britain’s service sector expanded at its fastest pace in 10 months in January, exceeding every expectation, while activity in Indian and Russian services companies grew at the fastest pace in six months.
| ON EXPANSION MODE |
| * Euro zone service PMI edged up to 50.4 in January from 48.3, its first showing above the 50 mark that divides growth from contraction since last August. |
| * The British services PMI rocketed to 56.0 from 53.5 in December, beyond every forecast from 26 economists and the strongest showing since last March. |
| * The euro area economy is likely to expand 0.3% this year after growing 1.6% in 2011, the ECB had said in December. |
| * China’s official government services PMI dipped to 52.9 in January from 56.0, suggesting slowing growth, though it is still comfortably above the 50 mark that denotes expansion |
The euro zone’s vast services economy snapped four months of decline by expanding last month, albeit very weakly. The PMIs suggested that a recession there, widely expected by economists, will be mild.
Business and consumer sentiment surveys from the euro zone since the start of the year have shown a definite upturn in optimism, although hard data still point to profound economic weakness in the common currency area.
Retail sales during December, including the busy shopping period after Christmas, fell some 1.6 per cent compared with a year earlier, suggesting some of the optimism may be of the frothy kind.
Economists also warn that developments in the euro zone debt crisis are still critical to the bloc’s economic outlook.
Greece at least looks likely to avoid a ruinous sovereign debt default by agreeing a debt swap deal and a new bailout with the International Monetary Fund, although market focus is shifting back to Portugal and its long-term solvency.
News from China earlier on Friday qualified any optimism that the global economy started this year with a strong bounce.
China’s official government services PMI dipped to 52.9 in January from 56, suggesting sharply slowing growth, although that was still comfortably above the 50 mark that denotes expansion.
That followed manufacturing PMIs on Wednesday that showed activity in China’s factories expanded only very slightly in January. Both the services and manufacturing data suggest that Chinese authorities will take further policy measures to support growth.
British boom?
Arguably the biggest surprise of the day was from the British services PMI, which rocketed to 56.0 from 53.5 in December, beyond every forecast from 26 economists and the strongest showing since last March.
The euro zone PMI too raised slim hopes the euro zone might avoid a fully-fledged recession, which economists have long regarded as an odds-on bet.
The euro zone service PMI edged up to 50.4 in January from 48.3, its first showing above the 50 mark that divides growth from contraction since last August.
“It is encouraging to not only see signs that the German economy has sprung back into life, but also that the rate of decline in the periphery has started to ease quite substantially,” said Chris Williamson, chief economist at PMI survey compiler Markit.
US service sector growth
The pace of growth in the US services sector accelerated in January to its highest level in nearly a year as new orders and employment jumped, an industry report showed on Friday.
The Institute for Supply Management said its services index rose to 56.8 last month from a revised 53.0 in December. It was the highest level since February 2011.
Economists had expected the index to hold steady at 53.0, according to a Reuters survey.
US stocks rose one per cent heading into the data, while Treasuries yields hit session highs following its release and the euro extended losses against the dollar.
The new orders index climbed to 59.4 from 54.6, though the prices paid measure edged up to 63.5 from 62.0.
Employment in the vast services sector was robust, rising to the highest level in six years at 57.4 from 49.8 and adding to signals of improvement in the labour market. The sector accounts for more than two-thirds of economic activity in the United States.
The overall US unemployment rate fell to close to a three-year low in January, separate data showed earlier on Friday, as the economy created jobs at the fastest pace in nine months.
Anticipation for a third round of stimulus, or quantitative easing, from the Federal Reserve had picked up after the Fed left the door open to more stimulus at its most recent meeting, the jobs report muted those expectations.
Economic growth is expected to back off in early 2012 from the 2.8 per cent rate of growth in the fourth quarter, though there are signs of underlying momentum.
Global service sector data on Friday was more mixed and showed Europe’s economy probably picked up last month, while growth in Chinese service firms slowed sharply.
