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Global stimulus is swelling, with China cutting interest rates ahead of disappointing factory data and the European Central Bank set to start government bond purchases just as data hints the euro zone economy may be picking up.
Central banks from Switzerland to Turkey, Canada and Singapore have already loosened monetary policy this year and chances are high the Reserve Bank of Australia will cut rates for a second time in as many months on Tuesday.
The People’s Bank of China (PBOC) on Saturday cut its benchmark lending and deposit rates, pre-empting official data which showed a second consecutive month of shrinking manufacturing activity.
The European Central Bank will, meanwhile, start its trillion-euro quantitative easing programme this month.
The latest Markit Eurozone Manufacturing Purchasing Managers’ Index (PMI) still pointed to only a modest pace of growth across factories in the euro zone but some economists were sounding a bit more optimistic about the future.
The latest PMI held steady at 51.0 in February, slightly below an earlier flash reading of 51.1 and just above the 50 threshold that separates growth from contraction.
But while German manufacturing growth gained pace and Italian factory activity increased for the first time in five months, a downturn in France worsened in February. Separate official data on Monday showed euro zone inflation fell by less than expected in February and core inflation held steady, while unemployment eased in January for the third consecutive month.
In Britain, manufacturing growth hit a seven-month high, adding to signs that the UK economy has started on a stronger footing driven by domestic demand.
China’s HSBC/Markit version of the PMI on Monday climbed to a seven-month high of 50.7 in February, from 49.7 in January, as new orders picked up.
China’s official Purchasing Managers’ Index (PMI) inched up to 49.9 in February from January's 49.8, a whisker below the 50-point level separating growth from contraction, but above more pessimistic analyst forecasts for a 49.7 reading.
But it also showed China’s manufacturers were struggling to cope with erratic export demand and deflationary pressures.
That suggests more PBOC easing and scope for fiscal policy to play a part with government spending likely to pick up after the National People's Congress meeting this week.
“The priority has been shifted to safeguard growth,” wrote analysts at OCBC Bank. “We still expect one more interest rate cut in the second quarter and the next possible move is likely to be a reserve requirement ratio cut.”
“A weaker euro, lower oil prices, better economic environment and accommodative monetary policy should support confidence in the coming months,” wrote Apolline Menut, economist at Barclays.
Chris Williamson, chief economist at Markit, also sounded more optimistic, noting that despite a “disappointing headline figure” there were pockets of growth, noting boom times for Ireland.
