GLOBAL ECONOMY-Factories buoyant, price pressures rising

* Euro zone factory growth slows in March, prices soar

* China official PMI rises from six-month low

* India HSBC PMI steady at four-month high

* More policy tightening seen as costs keep rising

By Jonathan Cable and Koh Gui Qing

LONDON/BEIJING, April 1 (Reuters) – Factories in Europe
eased off the accelerator last month but Chinese and Indian
manufacturers bumped up production, so far unscathed by Japan’s
devastating earthquake and tsunami, surveys showed on Friday.

Worryingly for policymakers, sustained growth in orders
allowed European manufacturers to pass on the costs of soaring
raw materials to customers, with prices rising at their fastest
rate since at least late 2002. [EUR/PMIM]

In Asia’s big economies, similar surveys of manufacturers
showed worries that high oil prices could scupper growth were
unfounded for now, even though China’s outlook was clouded by
signs of disruptions to trade with Japan.

Markit’s Eurozone Manufacturing Purchasing Managers’ Index
(PMI), which records factory activity across all the major euro
area economies, dipped to 57.5 last month from February’s near
11-year high of 59.0, marking the 18th month above the 50 mark
that divides growth from contraction.

The output price index rose to its highest level since
Markit began tracking it in November 2002 and, coupled with
data on Thursday that showed euro zone inflation at 2.6 percent
in March, will cement expectations of a rate rise next week.

“They (PMIs) are still at very robust levels and pointing to
healthy growth in the industrial sector, suggesting that the
euro zone recovery will continue in the near term and gain some
steam,” said Ben May at Capital Economics.

A pair of China PMIs showed factories were growing
moderately rather than booming, and while some economists warned
of a continued slowdown, few thought slowing production would
slam the brakes on the world’s second largest economy.

“It’s growing at a slow and steady speed as tighter monetary
policy impacts,” said Stephen Green, an economist at Standard
Chartered in Shanghai. “I’m not overly worried about growth.”

China’s official purchasing managers’ index (PMI), compiled
by the government, rose to 53.4 in March from a six-month low of
52.2. A comparable survey published by HSBC steadied near
seven-month lows at 51.8.

In India, the mood among manufacturers was more upbeat. An
HSBC-sponsored PMI there compiled from a survey of around 500
firms held steady at a four-month high of 57.9.

British manufacturing growth weakened from a survey record
high the prior month after the inflow of orders slowed sharply
but the prices charged index hit a survey record, showing
manufacturers’ pricing power is rising. [GB/PMIM]

Comparable figures due at 1400 GMT are expected to show a
light weakening of growth in the United States. [ID:nN31206970]


For a euro zone graphic see

China’s PMI



The surveys suggested policymakers’ main focus in months
ahead will be on inflation concerns.

The European Central Bank has already signalled it intends
to raise interest rates next week from a record low of 1.0
percent and the Bank of England, facing inflation more than
double its target, may follow suit as soon as May.

“By showing ongoing robust euro zone manufacturing activity
and rising price pressures, the PMI reinforces belief that the
ECB will pull the interest rate trigger next Thursday and raise
interest rates from 1 percent to 1.25 percent,” said Howard
Archer at IHS Global Insight.

Worried that rising prices could stir social unrest, China’s
central bank has steadily tightened policy since October, when
it declared that fighting inflation was a priority.

The PMI surveys suggest this may be working.

While prices climbed there, they did so at a slower pace and
most analysts expect China to raise interest rates at least once
more this year. A government researcher said on Friday a rate
rise could happen as soon as this month. [ID:nL3E7F109O]

“Quantitative tightening is working. So as long as Beijing
keeps tightening for another three to four months, inflation
should start to slow meaningfully in the second half of 2011,”
said Qu Hongbin, HSBC’s chief economist in China.

In India, price pressures appeared to be more stubborn,
despite eight interest rate increases in the past year and the
HSBC survey showed the input price index in March was at its
highest since the poll was started in April 2005.
(Editing by Mike Peacock)

GLOBAL ECONOMY-Factories buoyant, price pressures rising