Kevin Frayer, Getty Images
Industryweek 11138 060116chinafactorykevinfrayer

GLOBAL ROUNDUP: China Factory Gauge Signals Further Stabilization

June 1, 2016
Around the world, Russian manufacturing edging toward growth ... British manufacturing subdued ahead of Brexit referendum ... and Swiss growth slow unexpectedly.

China’s official factory gauge remained above the dividing line that signals improving conditions for the third straight month, adding to recent evidence of stabilization in the world’s second-largest economy.

The manufacturing purchasing managers index stood at 50.1 in May, the nation’s statistics agency said Wednesday, matching April’s level. The non-manufacturing PMI was at 53.1 compared with 53.5 in April. Numbers higher than 50 indicate improving conditions.

Fresh signs of resilience will be welcomed by policy makers, after weak April readings raised concerns that a first-quarter stabilization was faltering. Authorities are striving to keep economic growth above 6.5% this year while keeping a lid on debt and cutting excess capacity in industries including coal and steel.

“The economy is operating steadily right now, but lacking any upward momentum,” said Tao Dong, chief regional economist for Asia excluding Japan at Credit Suisse Group AG in Hong Kong. “The economy will wane again in the summer, and that will be a key test for the (People’s Bank of China) — can it maintain stable policy and focus on supply-side management?”

Measures of output and purchase quantity rose, with small and medium-sized enterprises picking up, the manufacturing data showed. For the services gauge, declines in input prices and business activity expectations weighed on the index.

A gauge of factory employment climbed to a one-year high of 48.2 while the corresponding level for services and construction weakened slightly to 49.1. A separate manufacturing PMI reading from Caixin Media and Markit Economics fell to 49.2 in May, matching economists’ estimates and down from 49.4 in April.

Russian Manufacturing Edges Toward Growth

Russian manufacturing contracted less than economists estimated last month, supplying further evidence to policy makers lauding a stabilization of the recession-ravaged economy.

The PMI there rose to 49.6 in May from 48 in April, according to a statement released by Markit Economics on Wednesday. The median of six estimates in a Bloomberg survey was 48.5. The improvement in the overall index was driven by growth in production and job creation “evident for the first time in 35 months,” Markit said.

“Although falling demand for Russian goods remains a worry for policy makers, output returning to expansion territory and workforce numbers increasing, albeit in each case only marginally, highlights that the worst may have passed,” Samuel Agass, an economist at Markit, said in the statement. “With input buying rising at the fastest pace for 18 months, companies look set to boost production in the coming months if new orders pick up.”

The economy of the world’s biggest energy exporter is adapting to low oil prices. Gross domestic product declined 1.2% in the first quarter from a year earlier, the smallest drop since the contraction began at the start of 2015. In the absence of external shocks, growth may return in the “coming months,” according to estimates by the central bank’s research and forecasting department.

UK Manufacturing Stays Subdued as Brexit Referendum Looms

U.K. manufacturing unexpectedly returned to growth in May, though the pace was subdued and suggests the sector continues to drag on the economy, according to Markit.

The PMI rose to 50.1 from 49.4 in April, inching above the key 50 level that divides expansion from contraction. Economists had forecast a reading of 49.6, according to a Bloomberg survey. The drop below 50 the previous month marked the first contraction in three years. It heightened concerns about the economy’s momentum after expansion cooled in the first quarter.

While the May figure marked an improvement, it adds to a lackluster economic situation as Britain counts the days to the vote on European Union membership on June 23. While the Bank of England has said uncertainty is having a negative impact on investment and hiring, two officials indicated last month that the slowdown might not be purely referendum-related.

Swiss Growth Unexpectedly Slows

Switzerland’s economy barely grew in the first quarter as government spending fell for the first time in a year.

The slowdown to 0.1% followed expansion of 0.4% in the last three months of 2015 and fell short of the 0.3% growth that economists had forecast. The report published Wednesday by the State Secretariat for Economic Affairs in Bern also showed that government expenditure dropped 0.8%.

The economy has been fighting to regain its footing a year after the Swiss National Bank abolished its cap of 1.20 per euro on the franc. With the strong currency undermining exports and expansion, demand has been underpinned by domestic consumption. Surveys had suggested momentum was building at the beginning of 2016.

By Olga Tanas, Jill Ward and Catherine Bosley, with assistance from Ailing Tan, Enda Curran, Zoya Shilova and Joel Rinneby.

Popular Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!