Mfg to stabilise as EU, Japan weakness offset boom: Markit

Chris Williamson, chief economist, Markit Economics explains to CNBC-TV18 that though manufacturing in the US and other economies has begun to show improvement, the positive effect is being nullified by the weakness in the eurozone and Japan.

Below is an edited transcript of the analysis on CNBC- TV18

Q: Let’s go with Europe first. The data continues to be disappointing. What is your outlook on Europe?

A: The eurozone is still a key source of global weakness at the moment. Although the indicators have pulled out in seven countries at the end, the eurozone is still in deep contraction and it is not the usual suspects of Spain, Italy and Greece.

The contraction has spread in France and Germany is also struggling. So across the board in the eurozone there is weakness and perhaps some stabilisation in the rate on contraction, but the indicators still suggest that the GDP is going be disappointing for the final course of the year which will signal a deepening in the recession.

Q: What do you make of the data in the US that seems to continue to strengthen both on the PMI as well as ISM data?

A: The market index was actually slightly higher than the ISM as well so both surveys are sending a positive signal. Other surveys and in other countries, companies have begin to report that the US was an increasing source of demand and that their exports to the US has begun to pick up. So, there is some sustained expansion and even perhaps an acceleration of the US manufacturing sector at least towards the end of 2012 which bodes well going into 2013.

So all the worries about fiscal cliff and the uncertainty doesn’t seem to have really hit the manufacturing sector and with the latest news of the fiscal cliff discussions hopefully, there is are going to be a further gain in momentum in the New Year.

Q: Does the China come-back seem to be strengthening as well?

A: Yes, and it is not just China as well. Domestic demand has been a key driver that turned around in China. But the other PMI surveys indicate that countries such as South Korea and Taiwan are all improving. So there is a broad-based upturn in Asia and in fact in the wider emerging markets as well such as the pick-up in indicators like the PMI from Brazil and data from Mexico.

So the global manufacturing scenario is very reassuring and starting to improve. But overall, manufacturing is beginning to stabilise because faster growth in the US, China and another countries is being offset by the ongoing weakness in the eurozone and Japan.