Factory output growth eased only slightly in Asia in December and offered an upbeat end to a fraught 2010 for the eurozone, with signs that growth in export orders was filtering through to the region's periphery. Surging new orders and a fast-improving labour market helped quicken the expansion of the single currency area's manufacturing sector for the fourth month running, purchasing managers' indexes showed on Monday.
In fast-growing China and India, manufacturing expanded robustly though at a slower pace than previously, easing some concerns about possible overheating in Asia. South Korea's factories posted their biggest surge in seven months.
Powerhouses Germany and France continued to lead the 16-nation single currency zone's industrial recovery. But output also grew faster in much of the area's periphery - where debt concerns continued to drive financial markets on the first trading day of 2011 - as export orders revived following steady declines in the value of the euro. Europe's holiday-thinned markets showed little reaction to the PMI data. With investors bracing for a heavy quarter of eurozone debt issuance, safe-haven German government bonds rose while the euro resumed its slide against the dollar.
"There's the question of whether things are going to blow up again with everyone having so much issuance to do and that will lead to more stresses on the periphery," a London-based fixed-income trader said. The Markit Eurozone PMI, which records manufacturing activity across all the major euro area economies, rose to 57.1 in December, revised higher from a preliminary reading of 56.8 and up from 55.3 in November and nearing April's 46-month high.
In Germany, manufacturers boosted their workforces at the fastest rate in at least 14 years and the headline index rose to a revised 60.7, its highest level since July. Ireland's PMI hit its highest level since May and Spain's index rose off the back of its strongest monthly surge in foreign orders in over a decade, though factory output in recession-mired Greece remained in the doldrums.
The growth outlook for Europe remains modest, with cuts in public finances expected to weigh for years. Analysts polled by Reuters last month expected quarter-on-quarter growth in the eurozone to peak at 0.5 percent over the next two years. Emerging economies have bounced back far faster from he global crisis, but they are also grappling with inflationary pressure driven by higher food and fuel prices and an strong influx of funds from investors.
Indonesian consumer prices rose nearly 7 percent on the year in December, highlighting the risk that Asia's growth may come at the cost of tighter monetary policy. In China, the official PMI edged down to 53.9 from November's 55.2, data on New Year's Day showed. That eased worries about overheating in an economy that saw inflation reach a 28-month high in November. In India the HSBC Markit PMI remained high at 56.7, albeit down from November's six-month high of 58.4. Japan's manufacturing activity contracted for the fourth straight month though index rose to 48.3 from November's 47.3, showing the contraction had at least eased, data last week showed.
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