SYDNEY • Growth in China's service sector picked up last month while big Japanese companies planned to ramp up spending at the fastest pace in a decade, offering hope that prospects are improving for Asia's largest economies despite sluggish factory growth.
Yesterday's data fuelled expectations that the wobbly global economy may start levelling out in the second half of the year.
But the outlook remains murky, with fears that Greece's debt crisis could splinter the euro zone and worries about whether China can avoid a stock market crash keeping investors on edge.
Activity in China's factory sector expanded slightly last month though not as much as expected, official surveys showed, suggesting the economy may be starting to slowly level out after a raft of support measures, including interest rate cuts and more infrastructure spending.
Japanese factories barely expanded, but a private report showed a strong pick-up in export orders.
A Bank of Japan (BOJ) survey also showed a strong bounce in business confidence and spending plans, a welcome sign for Premier Shinzo Abe's economic revival strategy which has seen limited success in nudging firms to boost wages and investment.
CommSec chief economist Craig James said: "When you have two of the biggest economies in the world showing positive readings, that is encouraging. They also come on the back of some good readings out of the United States."
Yet reports from South Korea, Taiwan and Indonesia provided a more sobering read that still pointed to challenging conditions for many economies in the region.
The uncertainty over Greece also dampened confidence, though Asian markets held up well yesterday. Though Greece makes up only about 2 per cent of the euro-zone economy, fears of contagion to other weak European Union members could overshadow recent signs that businesses are in better shape.
China's official manufacturing Purchasing Managers' Index (PMI) for last month came in at 50.2, unchanged from May.
The service PMI climbed to 53.8 from 53.2 in May, above the 50-level that reportedly separates growth from contraction.
"It basically highlights that there is some degree of stabilisation happening and it's very much in line with what the authorities want to see," Mr James said.
Some analysts, though, suspect softness in the manufacturing sector would require more policy easing. "Looking ahead, as real interest rates faced by Chinese companies remain elevated, we see that further monetary easing is still highly needed," ANZ economists Liu Ligang and Zhou Hao said in a research note.
Last Saturday, China's central bank cut lending rates for the fourth time since November. It also trimmed the amount of cash that some banks must hold as reserves.
The dual central-bank action was the first since the height of the global financial crisis in late 2008.
Sentiment among large Japanese manufacturers improved for the first time in three quarters last month. BOJ's Tankan large manufacturers' index rose to 15 from 12 in March, beating economists' forecasts for an unchanged reading.
The index is projected to improve to 16 in September, with large companies across all industries planning to boost capital expenditure by 9.3 per cent in the year through next March, the BOJ said.
Confidence among the major non-manufacturers improved to plus-23 from plus-19 in the previous quarter. Improved business sentiment could help buttress an economy that BNP Paribas SA says may have slowed this quarter on weaker production and exports.
Japan's economy is forecast to slow to 1.4 per cent in the second quarter from an annualised 3.9 per cent in the first three months of the year.
REUTERS, AGENCE FRANCE-PRESSE
