Creaking euro zone, China sound warnings for global growth

LONDON/BEIJING/NEW YORK (Reuters) - Surveys sounded warning bells for the global economy on Thursday as euro zone businesses grew less quickly than any forecaster expected, and China and U.S. factories lost momentum.

The downbeat data, alongside evidence of further price-cutting, will add to calls for more policy action from the European Central Bank, while the first drop in Chinese manufacturing output for six months will heap similar pressure on authorities in Beijing.

"It does reinforce the case for quantitative easing from the European Central Bank," said Alan Clarke, European economist at Scotiabank, of the euro zone PMIs.

Markit's Composite Flash Purchasing Managers' Index for November, based on surveys of thousands of companies and seen as a good growth indicator, fell to 51.4, missing even the lowest forecast in a Reuters poll.

The service industry PMI also undershot all forecasts by falling to 51.3, while the factory PMI's dip to 50.4 missed consensus. However, all three readings held above the 50 mark that separates growth from contraction.

Markit said the PMI pointed to 0.1-0.2 percent GDP growth in the euro zone in the current quarter, compared with the 0.2 percent forecast in a Reuters poll taken last week.

"November's fall in the euro zone composite PMI is a serious blow to hopes that the recovery would resume toward the end of the year," said Jennifer McKeown, senior European economist at Capital Economics.

Forward-looking indicators suggest the situation is unlikely to improve anytime soon.

The composite new orders index fell below 50 for the first time since July 2013, and factories, which barely increased staffing levels, ran down old orders faster than last month.

But likely of greatest concern for the ECB, which is facing the specter of deflation, service firms cut prices they charge again, as they have done ever since late-2011.

Euro zone prices rose 0.4 percent in October, well below the ECB's target of just under 2 percent and stuck firmly in what it terms the inflation danger zone.

To keep the region from slipping into deflation, the ECB has been pumping money into the banking system by buying covered bonds and offering cheap long-term loans to banks.

The chances it takes the plunge and buys sovereign bonds are now 50-50, a Reuters poll found. [ECILT/EU]

BRITTLE CHINA

In China, the world's second biggest economy, the HSBC/Markit manufacturing PMI reading showed a drop to a six-month low of 50.0 in November. The factory output sub-index fell to 49.5, its first contraction since May.

A cooling property market, erratic foreign demand and overcapacity have weighed on its manufacturers and the broader economy this year despite a steady stream of stimulus measures.

China's annual growth slowed to 7.3 percent in the third quarter, leaving 2014 on track to be the slowest in 24 years.

"We still see uncertainties in the months ahead from the property market and on the export front. We think more monetary and fiscal easing measures should be deployed." said Hongbin Qu, chief China economist at HSBC.

The Markit/JMMA version of Japan's PMI was more mixed. While the headline index edged down to 52.1 in November, from 52.4 in October, output expanded at its fastest clip in eight months.

Firms may have been responding to better offshore demand as exports soared, reflecting a weaker yen.

Policymakers were taken by surprise earlier this week when data showed the economy fell into recession in the third quarter, underlining the necessity of the Bank of Japan's super-loose policy and sending the yen to fresh lows.

U.S. GROWTH SLOWS

The U.S. manufacturing sector growth also slowed in November, falling to its lowest rate since January while a gauge of new orders also fell for a third straight month, an industry report showed on Thursday.

Markit said its preliminary or "flash" U.S. Manufacturing Purchasing Managers Index fell to 54.7 from October's final reading of 55.9. Economists polled by Reuters had expected it to rise to 56.4.

The index was at its lowest level since January, as was the new orders subindex. Output fell from 57.8 in October to 55.6, also at its lowest since January, when severe weather impacted economic activity.

"Export market weakness holds the key to the recent slowdown, with manufacturers reporting the largest drop in export orders for nearly one and a half years," said Chris Williamson, chief economist at Markit.

"There’s some reassurance from manufacturers continuing to boost their payroll numbers at a robust pace, but with backlogs of work showing almost no growth, the rate of job creation looks likely to moderate in coming months unless new order inflows pick up again."

The employment subindex rose to 55.1 from October's level of 54.9.

(Editing by John Stonestreet and Clive McKeef)