European News by Dr. Theodore: US growth, the outlook is gradually improving for advanced economies while even crisis-weary Europe is at last joining the recovery. Nonetheless, a slowdown in many emerging economies meant that global growth would remain sluggish, the Organisation for Economic Co-operation and Development.
“The bottom line is that advanced economies are growing more and emerging economies are growing less”. Among major economies, the US would lead the recovery with growth this year of 1.7%, the think tank said, trimming its estimate from a May forecast of 1.9%. Boosted by massive monetary stimulus from the central bank, Japan was seen on course for growth this year of 1.6%, unchanged from the OECD’s May forecast.
Meanwhile Europe, which has been a drag on growth in recent years as it struggled with its debt crisis, at last offered good news with recoveries underway in France and Germany prompting the OECD to raise its forecasts for them.
France was seen on course for growth of 0.3% this year, up from a contraction of 0.3% in the OECD’s May forecast, while Germany, Europe’s biggest economy, was set to grow 0.7%, up from 0.4% previously. Outside the eurozone, Britain was seen growing 1.5%, raised sharply from a forecast of 0.8% in May. Though major developed economies are picking up, a slowdown in many emerging countries was likely to weigh on broader global growth.
China was the exception among emerging economies, with its growth forecast to accelerate over the course of the year and achieve a rate of 7.4% this year. With the US economy on track to keep growing at steady clip, it was appropriate for the Federal Reserve to start slowing bond purchases, the main measure in the central bank’s exceptionally monetary easing policies.
The Fed signalled in May that it was contemplating slowing the pace of the purchases, which have been the flagship measure for reviving the world’s biggest economy since the 2008-2009 financial crisis.
In the euro area, the OECD said the ECB should keep the possibility of an interest rate cut on the table in case the recovery there peters out. With Italy’s economy forecast to contract 1.8% this year, Padoan said that the debt-laden economies of southern Europe still needed loose monetary policies there.
Meanwhile, data showed yesterday that demand picked up in the US manufacturing sector in August, which together with a report showing steady growth in China’s services sector added to signs of strength in the world’s two biggest economies.
Overall growth in the US manufacturing sector eased in August as output grew at the slowest pace in 10 months. But a pickup in new orders, along with a drop in inventories, pointed to faster growth ahead.
Financial data firm Markit said its final US Manufacturing Purchasing Managers Index fell to 53.1, below July’s reading of 53.7 and the initial August reading of 53.9. A reading above 50 indicates expanding activity.
“At the same time, inventories of finished goods showed the largest fall since 2009 as some companies reported that demand often exceeded production,” said Markit chief economist Chris Williamson.
“Factories will need to ramp up production to replace depleted inventories given this order book growth.” In China, domestic demand helped the services sector grow steadily in August, suggesting government measures have started to steer Asia’s biggest economy out of its longest slowdown. The Chinese non-manufacturing purchasing managers’ index (PMI) dipped slightly to 53.9 last month from July’s 54.1 to match June’s reading, the National Bureau of Statistics said.
“The rise in new orders set a good foundation for growth in the next few months,” Cai Jin, a vice head of the China Federation of Logistics and Purchasing, which compiles the index on behalf of the National Bureau of Statistics, said in a statement. Faster global growth could help persuade policymakers at the US Federal Reserve to slow their massive bond purchase programme soon.
The bank is now buying $85bn per month in Treasuries and mortgage-backed securities, but policymakers have hinted at exiting from the strategy as the US economy grows strong enough to stand on its own. A more robust US economy as well as faster expansion in China, a major US trading partner and engine of global growth, could nudge the Fed closer to a pullback as soon as its next meeting on Sept. 17-18.
But with US data still often painting a mixed picture, that potential September exit could yet change. Data earlier this week showed expanding Chinese factory activity. Both the private Markit/HSBC PMI and PMI data published by the National Bureau of Statistics notched readings above 50 in August, boosting hopes China may have avoided a sharp slowdown.
European factory data also pointed to growth in August, including faster-than-expected manufacturing growth in Britain. The survey was especially welcome after a long economic stagnation in the UK, which earlier this year flirted with a triple-dip recess
Sources: Reuters, The Peninsula, Gulf Times, Caye Global News
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