Euro zone factory growth stutters as China, Japan heals

Asia’s largest economies showed hints of healing last month but euro zone factory growth remained tepid as Greek debt talks, and the country’s possible departure from the bloc, dominated debate in Europe.

Speculation Athens would fail to make June 30's €1.6 billion repayment to the International Monetary Fund, heightening expectations Greece would crash out of the currency union, kept the bloc's manufacturing output check.

Having now defaulted on that debt and lost frozen international bailout money, Greek prime minister Alexis Tsipras wrote to creditors saying he was ready to accept their offer but only with revisions, according to a Greek government official.

Markit’s final euro zone manufacturing Purchasing Managers’ Index (PMI) reached a 14-month high but only nudged up 52.5 last month, from May’s 52.2. That was in line with a preliminary reading published before the Greek fears intensified.

Any reading above 50 indicates growth. A sub index measuring factory output that feeds into the composite PMI, due on Friday and seen as a good guide to growth, came in at 53.6, just above May’s 53.3.

That PMI outstripped lacklustre readings from Germany and France, the euro zone’s two biggest economies, for a second month and Markit said manufacturing provided only a modest boost to the wider economy.

“It is still only consistent with fairly sluggish growth in euro zone industrial output, suggesting the beneficial effects of the euro’s depreciation may already be starting to fade,” said Jessica Hinds, European economists at Capital Economics.

“The country breakdown revealed that industry is still faring well in Spain and Italy, but with worries about Greece intensifying this may not be sustained.”

British manufacturing growth slowed unexpectedly to its weakest rate in more than two years, dented by subdued export demand from Europe.

European shares and peripheral euro zone bonds rose and the euro held its own earlier on Wednesday as some investors kept faith with expectations that, despite defaulting, Greece would find a way to stay inside the currency zone.

Later on Wednesday in the United States, the ISM factory PMI is expected to accelerate, reinforcing views the Federal Reserve could start raising interest rates in September.

Reuters