Global economy: Business activity lifted in Feb as central banks loosen up

Friday, 6 March 2015 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Global business activity picked up last month just as many central banks around the world loosen monetary policy further to try and drive up stubbornly low inflation and revive moribund economies. Growth in China’s service industry accelerated and India’s expanded at an eight-month high while firms across the euro zone ramped up operations at the fastest rate in seven months, according to surveys published on Wednesday. The survey results come days after the People’s Bank of China (PBOC) cut interest rates and mere hours after the Reserve Bank of India followed suit. The European Central Bank is about to embark on a trillion-euro stimulus program. “Activity has begun to pick up a bit, some of the concerns about growth falling off a cliff towards the end of last year always seemed to us to be overdone,” said Andrew Kenningham at Capital Economics. “The most likely factor is the fall in the oil price which is now beginning to feed through. Central bank action won’t do any harm.” Oil prices, like the euro, have tumbled in recent months, helping drive Markit’s final February Composite Purchasing Managers’ Index (PMI) for the euro zone, seen as a good growth gauge, up to a seven-month high of 53.3. Although weaker than a preliminary estimate of 53.5 it comfortably beat January’s 52.6 and achieved its 20th month above the 50 level that separates growth from contraction. Markit said the surveys pointed to first quarter GDP growth of 0.3%, the same as in late 2014, with business activity expanding in all the bloc’s four biggest economies for the first time since April. That matches the median forecast in a Reuters poll last month. Eager German shoppers helped January’s euro zone retail sales grow at their fastest rate since May 2013, quicker than any of the economists polled by Reuters had expected. But firms have been cutting prices for almost three years now to encourage demand, the PMI showed, and the ECB is still struggling to bring inflation – which was -0.3% in February – back to its near 2% target. As part of that battle, and to stimulate growth, the central bank plans to flood markets with cash from this month. Business expectations among services firms for the coming 12 months were at their highest since May 2011, suggesting they are optimistic the ECB’s plan will succeed – unlike nearly half of 83 economists polled by Reuters last week. In contrast, Britain, which is outside the euro zone, may begin raising interest rates late this year, a Reuters poll found last week. In a further sign its economy got off to a strong start in 2015, firms hired staff at the second-fastest rate on record, wages rose and new orders increased. “Strong growth, rapid employment gains, optimistic firms, expectations of future rapid growth. It hardly stacks up to the Bank of England’s more cautious assessment of conditions in its February Inflation Report,” said Rob Wood at Berenberg. The US Federal Reserve is widely expected to begin tightening policy sooner, probably in June, although an Institute for Supply Management survey due later on Wednesday is expected to show a slight loss of momentum in services activity. Easing Asia China’s HSBC/Markit Services PMI picked up to 52.0 last month from January’s 51.8 as new business increased at the quickest pace in three months. “The solid rise in new orders suggests that activity growth may pick up in the months ahead, as firms continued to add to their payroll numbers amid a positive business outlook,” Markit economist Annabel Fiddes said.