Factory growth from Germany and Switzerland to the U.K. slowed in March as the region’s recovery struggled to keep momentum, leaving the global economy reliant on emerging markets to drive expansion.
A gauge of manufacturing in the 17-member euro region fell to 57.5 from 59 in February, London-based Markit Economics said in an e-mailed report today. Measures for the U.K., Switzerland and the Czech Republic weakened and economists forecast the U.S. index due later today will also show slowing. By contrast, manufacturing growth in China, India and Russia picked up.
Europe’s economy faces headwinds from surging energy costs burdening businesses and households, and a spate of government austerity measures. Faster inflation may prompt the European Central Bank to raise interest rates next week, pushing the euro higher and hampering the region’s exporters by making their goods more expensive.
Today’s data adds to signs “that in the developed world growth in the manufacturing and trade-led cycle is petering out,” said David Owen, chief European economist at Jefferies International in London. “These countries will have to strengthen domestic demand to offset the falloff in exports. The euro exchange rate certainly doesn’t help exporters, even within the euro area, as Chinese goods are much cheaper.”
ECB policy maker comments that they intend to raise interest rates for the first time in almost three years next week has driven up the euro almost 6 percent in the past three months. The European single currency was trading at $1.4155 at 11 a.m. in London.
ISM Report
An index of manufacturing growth in the U.S. may have dropped to 61 from 61.4 in March, according to the median forecast of 79 economists surveyed by Bloomberg News. The Institute for Supply Management will release the data today at 10 a.m. Washington time.
China’s manufacturing growth accelerated for the first time in four months with the index rising to 53.4 from 52.2, while India’s manufacturing grew for a 24th straight month and the index remained at 57.9. Russia’s factory output gauge increased to 55.6 from 55.2, the highest almost five years.
In Europe, the index in Germany, Europe’s largest economy and the region’s manufacturing powerhouse, dropped to 60.9 from 62.7 while the gauge of U.K. manufacturing growth fell to 57.1 in March from 60.9. In Switzerland the indicator dropped to 59.3 from 63.5 and in the Czech Republic it fell to 58.6 from 59.8.
“The good news is that we expect the global recovery to proceed, led by emerging markets,” Naoyuki Shinohara, deputy managing director of the International Monetary Fund, said March 30. “But the not so good news is that it will remain a multi- speed recovery with considerable downside risks.”
‘Strong Level’
At the same time, while the euro area manufacturing sector is slowing, that is “from a rather strong level,” Ken Wattret, chief euro area economist at BNP Paribas in London, said in a note today.
European manufacturers have driven the region’s expansion as government austerity measures curbed household spending. A gauge of confidence among euro-area manufacturers remained unchanged in March from the previous month while consumers and builders grew more pessimistic about the outlook, a European Commission survey showed on March 30.
Daimler AG (DAI), Audi AG and Bayerische Motoren Werke AG (BMW), the three largest luxury carmakers, plan to add thousands of workers. HeidelbergCement AG, the world’s third-largest maker of cement based in Heidelberg, Germany, on March 17 forecast higher sales and earnings for 2011.
ECB Signal
The ECB has signaled it may raise its main lending rate from a record low of 1 percent next week to fight increasing price pressures even after Japan’s March 21 earthquake and the ensuing nuclear disaster. Crude-oil prices have surged 15 percent this year, pushing euro-region inflation to 2.6 percent last month.
Even so, Pacific Investment Management Co. said a lack of growth in Europe may make it difficult for the ECB to push through a series of interest-rate increases.
“It looks very likely that the ECB will raise interest rates next week and we think it’s very unlikely they’ll raise interest rates once as a gesture,” Andrew Balls, Pimco’s London-based head of European portfolio management told Francine Lacqua on Bloomberg Television’s “On the Move.” Still, “We don’t see a strong growth outlook in Europe, so the ECB hiking rates makes us a little bit skeptical that they’re actually going to be able to deliver the expected path of rate hikes.”
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