Factories fail to pass muster in December

A reading above 50 on the Index indicates expansion, while a score less than 50 reflects contraction in output.

The global economy finished a year ago on a fragile footing, with factory activity in China shrinking for the 10th consecutive month in December while a pick-up in the eurozone was tepid, suggesting more policy stimulus might be in the pipeline.

It said that around 18 per cent of panellists reported lower levels of new orders, which they commonly linked to heavy rains weighing on domestic demand.

“In light of the setback to services sector growth, the government needs to gradually relax restrictions in the sector”, said He. Bucking the upward trend, however, civil engineering activity slowed last month. It is based on a survey of 300 companies.

The momentum in services output comes as a relief for the Indian economy after data showed manufacturing activity contracted in December.

The Nikkei services business activity index for December stood at 53.6 from November’s 50.1.

For the first time in ten months, the PMI data pointed to an improvement in operating conditions at South Korean manufacturers. The latest PMI reading was the lowest in more than five years of data collection, largely reflecting weaker contributions from the output, new orders and employment components.

Painting a gloomier picture, the survey said that the rate of decline was the sharpest in nearly seven years.

New business increased with survey respondents reporting improved willingness among clients to commit to new projects. An official survey on Friday, which looks at larger state-owned companies, showed a fifth month of contraction though at a slightly modest pace of 49.7.

But despite what appears to be a solid end to the year for the currency area’s economy, the surveys found that businesses continued to cut their prices, an indication that the European Central Bank will find it hard to raise the inflation rate to its target of just under 2%. It is important to point towards the fact that China’s manufacturing industries are facing soft demand from customers as global growth remains weak.

The weakening manufacturing sector can further hurt economic recovery, as the government has already lowered its economic growth forecast for 2015-16 to 7-7.5% from 8.1-8.5%.