Asia leads in factory output, little impact of debt crisis

Manufacturing in China and India accelerated last month even as a debt crisis caused turmoil in Europe, while US factory output growth slowed slightly but still posted a 16th straight month of expansion.

Two Chinese purchasing managers’ indexes registered their strongest readings in seven months, and the story was similar in India.

Signs of robust growth in China and another solid month of growth among US manufacturers helped boost stock markets worldwide and halt a euro slide.

European manufacturing was a tale of two regions, with German output accelerating and French growth hitting a level not seen in 10 years. But the sector lagged in Italy and Spain and contracted in Greece for a 15th straight month. Ireland, which accepted an emergency 85-billion-euro European Union aid package this week to stave off a debt crisis, saw a slight rise in factory activity, though it remained too slow to drive a recovery.

 “It is worrying to see Italian activity lose momentum in addition to ongoing weak activity in Spain, Ireland and, especially, Greece,” said Howard Archer at IHS Global Insight.

The Irish bailout has failed to reassure investors, who have since set their sights on Portugal, Spain and Italy, all of which suffer from high debt levels and slow growth.

Outside the Euro zone, British manufacturing activity leapt unexpectedly to a 16-year high in November.

There was little sign that Europe’s trouble was hurting global economic growth, driven by Asia’s powerhouse economies.

But the strong manufacturing surveys also highlighted a worry for investors: rising inflationary pressure in China and India and the need for more monetary tightening in economies that have driven much of the global recovery.

That, rather than Europe’s debt troubles, could pose the biggest threat to global economic growth.

 “Good news from the economy may not be that good for the market as it is concerned about more tightening,” said Ting Lu, an economist with Bank of America-Merrill Lynch. “The high PMI reading could convince Beijing to tighten a bit more.” China raised interest rates in October for the first time in nearly three years and most analysts still expect two to four more increases by the end of next year.

Thailand’s central bank surprised financial markets on Wednesday by raising its benchmark interest rate, while the Reserve Bank of Australia raised rates earlier this month. Attempts to rein in growth in Asia could be a bitter pill to swallow, with Europe teetering on the brink of more serious debt troubles and US growth that still seems fragile.

In Japan, the picture is bleak. Prolonged economic weakness may keep Japan in deflation longer than the Bank of Japan’s current forecast, a member of its policy board said on Wednesday, offering the bleakest view to date by a central bank policymaker.

Board member Miyako Suda said there was a strong chance Japan’s economy would contract in the final quarter of this year after strong growth in July-September.