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Eurozone crisis live: German manufacturing sector grows as Greece’s suffering continues

Eurozone manufacturing output drops in January
Greece mired in recession, but Germany’s doing OK.
• UK manufacturing returns to growth
• The agenda

10.02am: Two pieces of welcome good news for George Osborne within half an hour!

Following the decent UK manufacturing data, the Institute of Fiscal Studies has just declared that the outlook for public finances over next few years is not as gloomy as official forecasts suggest.

Larry Elliott, our economic editor, is at an IFS briefing now. He says that if the IFS is right, George Osborne will have more wriggle room at next election.

It’s not all rosy — the IFS also reports that the risks to the public finances are weighted to the downside.

9.46am: The London stock market has leapt following the news that UK manufacturing posted strong growth in January.

The FTSE 100 is now up 85 points, and the pound has crept a little higher against the US dollar to .578.

Christopher Adams, the FT’s Markets Editor, reports that traders are in riskier mood – and even rushing to buy bank shares.

Stronger than expected UK and German PMI data have given risk assets shot in the arm: banks lead gains in Euro stocks (Eurofirst up 1.2pct)

— Christopher Adams (@ChrisAdamsMKTS) February 1, 2012

9.31am: Britain’s manufacturing sector roared back to growth in January. That’s a real surprise.

Markit reported that the UK PMI came in at 52.1, which is the highest level since May 2011. City economists has expected a reading of exactly 50 (on the cusp between expansion and contraction).

Rob Dobson of Markit reckons that the strong data means that “a return to recession is by no means a certainty” (after the UK shrank in the last quarter of 2012).

The data shows that UK firms reported a jump in new orders. There were also signs that inflationary pressure is easing – with raw material costs dropping at their fastest rate since June 2009.

9.08am: The slump in Greek manufacturing output in January shows that the country is still buried deep in recession.

Markit’s senior economist, Paul Smith, warned that the country is trapped in a vicious circle, as austerity measures choke demand out of the system. With unemployment rising and consumer spending, firms are reporting that they are struggling to access working capital.

Smith said:

Until this negative feedback loop is broken, it is hard to see the fortunes of the sector improving anytime soon.

9.03am: Manufacturing output across the eurozone also fell in January, for the sixth month running.

Markit’s overall PMI came in at 48.8, up from 46.9 in December — which means that the sector kept shrinking, but at a slower pace.

While Germany returned to growth (see 8.53am), the picture in Greece was dreadful.

Greek manufacturing output slumped to just 41 on Markit’s scale, down from 42 in December. New orders took a dive, and firms also reported that their work backlogs had also dropped.

8.53am: The first European manufacturing data is in — and it’s more more good news for Germany, and bad news for many other European countries.

The German manufacturing sector returned to growth in January, with a PMI of 51 (according to data from Markit). That’s a recovery from 48.4 in December, and means Germany’s manufacturing sector expanded for the first time since September.

But French and Italian manufacturing output both declined for the six month in a row.

France’s PMI dropped to 48.5 [a reading of 50 separates expansion from contraction] from 48.9. Italy’s rose from 46.8 from 44.3, indicating that its industrial sector kept shrinking but at a slower rate.

Spain’s manufacturing sector also shrunk again, but at a slower pace (with a PMI of 45.1, up from 43.7).

Switzerland and the Czech Republic also suffered another drop in manufacturing output.

8.37am: The early manufacturing data from China has pushed European shares higher in early trading, with the FTSE 100 jumping 60 points to 5743 (up 1.1%).

8.20am: The financial secretary of Hong Kong has warned that the global economy was facing a downturn worse than the 2008 financial meltdown.

John Tsang predicted that Hong Kong’s GDP could shrink in the current financial quarter, and blamed “unresolved economic troubles” in Europe and the US and the risk of turmoil in the financial markets.

Tsang said:

Despite our resilience, we will not lower our sense of crisis.

Even if Hong Kong GDP does shrink this quarter, it is still expected to post growth of between 1% and 3% this year. Many Western countries would take that!

8.05am: Manufacturing data from China has already been released – and the picture is murky.

The official data shows that China’s factory sector expanded slightly in January, defying economists’ predictions that it would shrink. Owners reported that new orders hit a three-month high.

The official Chinese PMI came in at 50.5 in January — slightly above the 50-point threshold which separates expansion from contraction. However, a rival unofficial survey from HSBC reckoned that activity fell.

A Chinese “hard landing” would push the world economy into deeper trouble, and analysts aren’t sure how the country ‘s central bankers will respond.

As SocGen’s economist Wei Yao put it:

This presents a dilemma for the People’s Bank of China.

7.59am: Here’s a round-up of some of the main events of the day:

• French/German/eurozone manufacturing data – around 9am GMT / 10am CET
• UK manufacturing data – 9.30am GMT
• US manufacturing data – 1.30pm GMT / 8.30am EST

Germany auctions up to €5bn of 10-year bonds
Portugal auctions up to €1.5bn of three+six month bonds – 10.30am GMT
UK auctions £2.5bn of debt, maturing in 2025
Czech Republic auctions up to €8bn of four-year debt

+ Angela Merkel is visiting China, the IMF’s Christine Lagarde is in Tunisia

7.45am: Good morning all, and welcome to another day of rolling coverage of the eurozone financial crisis (and other related matters).

As that post-summit glow ebbs away, attention turns to the world’s manufacturing industries. It’s a big day for industrial data – showing which countries performed well last month and which struggled.

We’ll also keep a (weary) eye on Greece, where debt talks appeared to stall last night.

And it’s a big day for bond auctions – with Germany, the UK and Portugal [among others] selling debt. Will they all find willing buyers?

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