Second half of 2015 begins on shaky note

The global economy started the second half of the year on shaky ground as business activity in the euro zone was weaker than expected and China’s vast factory sector appeared to be contracting at the fastest pace in 15 months in July.

The surveys come just months after the European Central Bank embarked on a 60 billion euro a month bond-buying programme and as Beijing said, it would allow its yuan currency to fluctuate more widely within its trading band as a way to support trade.

Markit’s purchasing managers’ indexes (PMI) are one of the earliest monthly economic indicators and could dampen hopes that ECB bond-buying and the tumbling euro are boosting growth and driving inflation higher in Europe.

Although Athens has accepted the conditions imposed on it by its international lenders, and last Thursday approved a second package of reforms required to start talks on a financial rescue deal, Greece’s brush with bankruptcy meant July was a turbulent month for the euro zone.

“While the latest data suggest that the Greek crisis has not derailed the euro zone recovery altogether, growth seems to be slowing as the boosts from earlier falls in oil prices and the euro exchange rate fade,” said Jennifer McKeown, at Capital Economics.

The euro EUR= has sunk more than 9 per cent against the dollar since the start of the year, hit by the ECB’s massive cash injection and fears a Greek exit from the bloc would bring the whole union crashing down. That has made the bloc’s goods cheaper abroad but done little for demand.

Markit’s Composite Flash PMI, based on surveys of thousands of companies and seen as a good guide to growth, fell to 53.7 this month from June’s four-year high of 54.2. A Reuters poll had predicted a more modest dip to 54.0.

The headline index has nevertheless now been above the 50 level that separates growth from contraction since mid-2013.

Markit said the data provisionally pointed to third-quarter growth of 0.4 per cent, slightly weaker than the 0.5 per cent predicted in a Reuters poll published last Thursday. Second-quarter growth is forecast at 0.4 percent. [ECILT/EU]

A corresponding survey due later from the United States (US) is expected to show manufacturers increased activity at the same modest pace as last month. Metal prices hit multi-year lows last Friday after the weaker-than-expected data from China and the euro zone. (MKTS/GLOB).

Fears of faltering demand in China, the world’s largest commodity buyer, piled the pressure on resource prices, sending gold to a five-year low and copper to a six-year trough.