by FP Staff Mar 6, 2013 01:45 IST
REUTERS - Global economic growth slowed to a four-month low in February, according to service sector surveys on Tuesday, but China's pledge to boost government spending to achieve 7.5 percent growth this year may help support activity in Europe and the United States also.
Growth was led by the vast U.S. services sector, where it accelerated to its fastest pace in a year in February, helped by a pick-up in new orders and demand for exports.
But France, Spain and Italy dragged the euro zone into a deeper downturn, earlier data showed, highlighting a widening chasm between these countries and prosperous Germany.
Meanwhile, data on China's increasingly important services sector showed that growth cooled in February and was in line with slower factory activity that suggests a modest rebound in the country's economy this year.
"Although the rate of expansion eased to a four-month low, the loss of momentum was only slight and improving inflows of new business raise the chances of a near-term reacceleration," said David Hensley, director of global economics coordination at JPMorgan.
The Global Total Output index, produced by JPMorgan with research and supply management organizations, slipped to 53.0 in February from 53.2 in January, comfortably above the 50 mark that divides growth from contraction.
A global index covering services firms edged down to 53.3 last month from 53.4. A similar manufacturing PMI released on Friday fell to 50.8.
On Wall Street though, China's policy announcement and the good data on the U.S. service sector combined with supportive Federal Reserve monetary policy all combined to lift the Dow Jones industrial average to a record high, eclipsing the previous intraday high reached in October 2007, when the world was heading toward the financial crisis.
Stocks in Europe also surged, with the pan-European FTSEurofirst 300 index hitting its highest closing level in 4-1/2 years, boosted by corporate outlooks and expectations for continued stimulus from global central banks, even as Europe's troubled economy deteriorated further.
In China, outgoing Premier Wen Jibao, speaking at the opening of the annual session of parliament, announced record-high government spending for 2013. The plan is the blueprint for the incoming administration led by Xi Jinping, who will formally take over as president at the end of the session, with Li Keqiang taking over as premier.
As part of the measures announced on Tuesday to promote growth, the Ministry of Finance said China would boost fiscal spending in 2013, raising the fiscal deficit target to 2.0 percent of gross domestic product, its highest since 2010 and up from 1.6 percent in 2012.
China's economy, the world's second biggest, grew by 7.8 percent in 2012, its slowest pace in 13 years.
The HSBC Services Purchasing Managers' Index for China showed a pullback in growth in February, with the index falling to 52.1 from January's 54.0, after seasonal adjustments. The services sector accounts for 46 percent of China's economy.
Qu Hongbin, HSBC's chief China economist, attributed the pull-back in services growth in part to a clampdown on wasteful state spending by Beijing, such as forbidding officials from hosting extravagant meals.
Distortions from the Lunar New Year holiday, which fell in February this year as opposed to January in 2012, may also have contributed to swings in the PMI data even though the series is seasonally adjusted.
"We expect a continuous modest improvement of service sector growth in coming months, thanks to healthy labor market conditions and the ongoing recovery of manufacturing growth," he said.
U.S. SERVICE SECTOR SURPRISE
In the United States, the services sector, which dominates the economy, posted its fastest pace of growth in a year in February. The expansion came even as the federal government is tightening spending and consumers are adjusting to a decline in disposable income following an increase in the payroll tax at the beginning of the year.
The Institute for Supply Management said its services index rose to 56 from 55.2 in January, exceeding economists' forecasts for 55. It was the highest level since February 2012. A reading above 50 indicates expansion.
"This was no question a positive number," said Michael Woolfolk, senior currency strategist at BNY Mellon. "It reflects improvement and reinforces the view that the economy continues to improve and should contribute to gains that have driven the stock market to a new record."
The measure of the backlog of orders was at its highest since May 2011 at 54.5 against 49. But the employment index weakened slightly, edging down to 57.2 from 57.5 in January.
In Europe, economic gloom continued to be the message of the day, however.
Purchasing managers indexes showed that France, Spain and Italy dragged the 17-member euro zone into a deeper downturn in February. Markit's Eurozone Composite PMI, a broad gauge of activity at thousands of companies across the euro zone, fell to 47.9 from 48.6 in January. A reading below 50 indicates contraction.
A reading of 53.3 for Germany's PMI stood in sharp contrast to the reading of 43.1 for the French PMI.
The outlook for the euro zone depends largely on whether Germany can keep up its economic growth and offset weakness in the bloc's next three biggest economies - France, Italy and Spain, according to Chris Williamson, chief economist at PMI compiler Markit.
He said that "seems a tall order, meaning hopes of a return to growth for the region by mid-2013 are now looking too optimistic."
Britain's services PMI, which accounts for the bulk of its economy, hit a five-month high of 51.8 last month from 51.5 in January, beating the median forecast of 51.0 in a Reuters poll. (Reporting by Kevin Yao and Aileen Wang in Beijing, Andy Bruce in London and Leah Schnurr and Steven C. Johnson in New York; Writing by Leslie Adler and Clive McKeef; Editing by James Dalgleish)
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