Manufacturing activity jumps as world pulls out of slump

Employees at work at the Pinghu Paper Factory in Shenzhen, China. (GETTY IMAGES)

Manufacturing activity continued to power ahead around the globe in January as economies pull out of deep recessions but a widening divergence in the euro zone will worry policymakers, data showed yesterday.

China's vast manufacturing industry expanded at a near record pace, Britain saw activity grow at its fastest rate in 15 years, India is leaping ahead after a slow patch and South Korea and Australia also saw improvement.

"Industrial activity continues to accelerate, implying stronger GDP growth in the first quarter. But rising input and output prices also point to greater inflationary pressure, which will likely prompt more tightening measures in the coming months," said Qu Hongbin, chief economist for China at HSBC.

But while the euro zone manufacturing sector grew at its fastest pace in two years in January there is a widening divergence between struggling Spain, Greece and Ireland compared to buoyant Germany, France and Italy.

"That could hinder the recovery in the euro area as a whole – and raises the chances of the euro group having to bail out members who cannot cope with their fiscal difficulties," said Colin Ellis at Daiwa.

Analysts see a one in five chance Greece, set to become the 16-nation bloc's most indebted member this year, will need to seek a bailout and say Ireland, Spain and Portugal are the economies most likely to suffer a similar setback in investor confidence.

A pair of surveys yesterday showed that China's vast manufacturing industry expanded at close to record pace last month as the world's third-largest economy continues to lead the global recovery.

India, another emerging power that avoided recession and is coming out strongly from a soft patch, saw its factory sector expand at its fastest clip in 18 months.

Russia in January recorded its second expansion in activity in the last 18 months.

South Korean and Australian manufacturing surveys showed improvement too, in part feeding off China's growth burst in the past quarter that brought it back to its cruising speed of more than 10 per cent.

In the US, the Institute of Supply Management also forecast to show a pick-up in growth, but only compared with a downward revised December figure.

 

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