LONDON, Nov 1: Strong global demand boosted exports from the euro zone and Britain, pushing manufacturing sector growth in both areas to multi-month highs, surveys of purchasing managers showed on Tuesday.
By contrast, China’s export orders dried up, sending its purchasing managers’ index to its lowest level in its 19-month history. Export growth also slowed in Japan, according to data published on Monday, but buoyant domestic demand pushed up its PMI to a high of 54.7.
The British index rose to 51.7 from 51.5, its highest level so far this year and slightly above expectations.
The equivalent gauge for the euro zone climbed one point to a 13-month high of 52.7 in October, moving further above the 50 line between growth and contraction and strengthening the case for a hike in interest rates next month or in early 2006.
This could provide a small additional backing to the idea that the euro zone economy is recovering and therefore might support an early hike, said Lorenzo Codogno at Bank of America, who last week changed his rates view and now sees a slightly greater than 50 per cent chance of a hike as early as December.
However, others noted that domestic demand in the euro zone still remained weak. They said the ECB may be reluctant to hike rates from a historic low of 2 per cent until the economy is less dependent on global demand — especially as growth is expected to slow in many countries, including the United States.
The gauge for the U.S. manufacturing sector, to be published by the Institute for Supply Management at 1500 GMT, is forecast to fall to 57.0 from 59.4.
In China — another key market for European goods — the PMI slipped to near-stagnation at 50.1 in October, though economists said growth was likely to remain robust in 2006.
Luke Thompson, senior economist at NTC Research which compiles the European indices, said exports would likely support euro zone manufacturing growth at around current levels until the end of the year, but further out the outlook is less clear.
We are looking for some real improvement in the employment numbers before we get too excited about the sustained momentum in the euro area, he said.
The euro zone employment index rose to its highest level since May 2001, but at 49.9 it showed that companies shed more staff than they recruited for the 53rd month in a row.
The UK employment index inched up to 47.7 from 47.6, also signalling continued job cuts.
Input prices in both the euro zone and Britain rose at the fastest pace since spring.
Central banks in both regions are keenly watching for any signs of high oil prices filtering through in to other costs.
In Britain, output price inflation slowed compared to September, suggesting that there could be room for the Bank of England to cut rates one more time from the current 4.5 per cent.—Reuters
