Chinese Factory Activity Drops, Euro-Zone’s Manufacturing Slows Down

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Chinese Factory Activity Drops, Euro-Zone’s Manufacturing Slows DownChina’s factory activity declined more than expected in August, adding to the growing pile of weaker-than-expected production, investment and credit reports in signaling that economic growth is slowing down.

The official Purchasing Managers’ Index stood at 51.1 in August, compared with an average estimate of 51.2 in a Bloomberg News poll of economists. The reading for July was 51.7. A separate manufacturing index compiled by HSBC Holdings Plc and Markit Economics stood at 50.2. However, the readings are still above the 50 mark that divides growth from contraction.

The weak data is expected to pressure the government to roll out further stimulus to ensure economic growth reaches the target of 7.5 percent in 2014.

“The two PMIs both show that the current recovery is relatively weak and choppy,” said Lu Ting, an Hong Kong-based head of Greater China economics at Bank of America Corp. “ Stimulus may include a greater re-lending quota from the central bank, and the government has pretty firm confidence it will keep the economy stable.”

The People’s Bank of China recently gave some regional banks a re-lending quota worth 20 billion yuan ($3.3 billion) in order to boost agriculture. The central bank also plans to lower borrowing costs on re-lending to certain rural financiers.

Elsewhere, U.K. manufacturing growth declined more than expected in August while Italian factory activity contracted as Europe battled reduced demand and increasing geopolitical risks.

Markit Economics reported that its euro-area gauge plunged more than expected in August, with the measure for Italy surprisingly edging below 50, its first reduction in 14 months. Sentiment in Europe has been hard-hit by mounting tensions in Ukraine, dampening consumer spending and business investment. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com