Private sector activity slows in China, Europe

Private sector activity slowed in China and Europe this month just as the outlook for the United States has darkened, according to data today which suggests a global slowdown is becoming more entrenched.

The euro zone private sector grew only modestly - and without the support of Germany and France, it would have shrunk - while China's factory sector barely expanded even as inflation eased, purchasing managers' indexes (PMIs) showed.

The data come a day after the US Federal Reserve said the pace of recovery in the world's largest economy was proceeding more slowly than it had expected, but pledged no new help for the economy once its bond purchase programme expires this month.

Adding to the gloomy mix, Europe is still trying to hammer out a second bailout for Greece and there are concerns that the sovereign debt crisis could spill over again to other countries on the euro zone's periphery.

Growth in the euro zone's dominant service sector was much slower than in recent months while manufacturers also eased off the accelerator as new orders declined for the first time in nearly two years, the Markit PMIs showed.

Earlier data from China - which has been the main driver of world growth - showed its factory sector barely expanded in June as ongoing policy tightening by the central bank to control inflation muffles a booming economy.

China's flash HSBC PMI, the earliest available indicator of the country's industrial activity, eased to 50.1 in June. Data compiler Markit said this was consistent with second quarter economic growth of around 9.1-9.3 per cent year-on-year, down from 9.7 in the first quarter.

Signs of slowing in some of the world's most important economies is happening at a time when stimulus is being withdrawn, not ramped up.

The Fed yesterday cut its forecasts for US economic growth, but offered no hint of further monetary support, saying the recovery should gradually pick up heading into 2012.

The central bank confirmed it was ending its $600 billion bond-buying programme at the end of June. By the time its latest stimulus wraps up next week, the Fed will have pumped some $2.3 trillion of new money into the economy.

The European Central Bank was the first of the big four central banks to hike interest rates back in April and is expected to raise again next month in a battle to control inflation despite the stuttering recovery and Greek debt crisis.

The Flash Markit Eurozone Services PMI fell to 54.2 in June from May's 56.0, its lowest level since December.

But it was the 22nd month the index, which measures the activities of companies ranging from banks to hotels, has been above the 50 mark that divides growth from contraction.

The flash manufacturing PMI fell to 52.0 from 54.6 in May, its lowest level since December 2009 while the composite PMI, a broader measure of the private sector which combines the services and manufacturing data, fell to 53.6 from 55.8.

The composite index is often used as a guide to growth and Markit said it was consistent with euro zone quarterly growth of 0.6 per cent for the second quarter.