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China, Japan pick up the pace in June as eurozone falters again

Reform laggard France dragged down Markit's eurozone PMI index to a six-month lowReform laggard France dragged down Markit's eurozone PMI index to a six-month low
Reform laggard France dragged down Markit's eurozone PMI index to a six-month lowAurelien Meunier—Getty Images

Asia’s two biggest economies are back in gear but the eurozone’s recovery is faltering, despite a fresh round of stimulus from the European Central Bank, according to a slew of surveys released Monday.

Preliminary Purchasing Managers Indexes for June, compiled by research firm Markit and HSBC, showed Chinese factory output rose to a seven-month high. The Markit/HSBC PMI index rose to 50.8 from 49.4 in May. A reading of above 50 signal economic expansion.

Hinbin Qu, chief economist for China at HSBC, said the figures showed that the authorities’ mini-stimulus over recent weeks, which included increases in infrastructure spending and a surprisingly broad loosening of monetary policy by the central bank, is filtering through to the real economy. Premier Li Keqiang had said in a speech last week that the country would avoid a “hard landing”.

In Japan, meanwhile, the PMI rose to 51.1 from 49.9, the first expansion since March. Markit economist Chris Williamson noted that that meant the Japan posted a reading of 50.1 for the second quarter as a whole. If so, Japan will have defied fears that a sharp rise in sales tax at the start of April would derail an uncertain recovery.

But as Asia’s big two forged ahead, the eurozone spluttered again. Markit said its composite PMI for the 18-country currency bloc fell to a six-month low of 52.8 in June from 53.5 in May, while the manufacturing sub-index fell to a seven-month low of 51.9.

Much of the slowdown was due to France, where the composite index fell to a four-month low of 48.0, from 49.3 in May. That suggests the French economy may have shrunk in the second quarter after stagnating at the start of the year. The forward-looking new orders component of the index fell at their fastest rate this year, suggesting the gloom may last some time yet.

France “continues to pay a steep price for its reluctance to reform and for the extra tax burden which the Socialist administration had imposed on the economy right after coming to power two years ago,” Berenberg Bank chief economist Holger Schmieding said in a note to clients.

By contrast, the euro zone’s largest economy, Germany, remained clearly in expansion territory at 54.2, albeit at its slowest rate in eight months and a clear drop from 55.8 in May.

Eurozone stocks fell in response to the news, as did the yields on benchmark government bonds. The German DAX index and France’s CAC-40 were both down 0.3% at 0600 EDT. By contrast, Japan’s Nikkei 225 index closed up 0.1%.