Global economy shows little sign of recovery

The signals from bellwether economies such as China, Germany and the United States herald strong headwinds against a global recovery; worse, they suggest it will be harder for policymakers to carry out their restructuring agenda.

Growth in China's factory sector weakened in April as the flash HSBC Purchasing Managers' Index fell to 50.5 in April from 51.6 in March, although it remained higher than February's reading of 50.4, the dividing line between expansion and contraction is 50. Germany, the leading European economy saw its manufacturing PMI drop to 47.9 in April from 49 in March, the lowest level in four months, while the Markit Flash US Manufacturers Purchasing Managers' Index fell to 52, its lowest level in six months.

The disappointing data from the top three economies have added to the global growth uncertainties and dampened the optimism of global financial markets.

Reflecting the more pessimistic mood, the International Monetary Fund on Tuesday cut its forecast for year-on-year global growth in 2013 to 3.3 percent, down from its January forecast of 3.5 percent.

In the first quarter, China, the world's second-largest economy, saw its growth unexpectedly slow to 7.7 percent year-on-year, compared with 7.9 percent in the previous quarter. There were hopes that growth would gradually pick up in the second quarter after the credit boom in March, but its flash PMI reading in April shows the prospects for that have dimmed.

Germany could be the most vulnerable of the three. Its manufacturing PMI was already below the neutral 50 mark in March and the new reading in April will add to the pressure on the European Central Bank to cut interest rates.

It is the US that seems to be in the best situation, as its Markit PMI in March showed manufacturing in the world's largest economy was on a steady recovery track. However, its poor manufacturing performance in April, together with the weakening in China and Germany, sends an unambiguous signal that the global recovery remains fragile and there could be darker days ahead.

The failure of the global economy to achieve solid recovery is adding to the difficulties facing policymakers in China and other countries as they implement restructuring.

For example, if Chinese policymakers continue their restructuring at the designed pace, short-term growth could be further affected, which could backfire and bring more pressure on them.

Policymakers have expressed their willingness to tolerate relatively low growth figures so as to accelerate economic restructuring that results in more growth coming from the sustainable source of domestic consumption. They have also vowed to push forward industrial upgrading and technological innovation to provide a long-term boost for the Chinese economy.

Facing the weak April data, however, there has been a rising call for easing monetary supply as a quick fix to the problem of slower growth.

However, past experiences show that while it is a quick solution, reliance on monetary easing will have many unaffordable side effects, such as an asset price surge and rising inflation.

Moreover, it may encourage enterprises to shift their focus from manufacturing to speculative financial and property investment.

In the wake of the 2008 global financial crisis, the easy monetary conditions in China led to many enterprises shifting to more profitable stock market and property investments.

History could repeat itself if the monetary environment becomes easier. The Ministry of Industry and Information Technology said on Tuesday that as industrial output growth slowed to 9.5 percent in the first quarter, down by half a percentage point compared with the previous quarter, the resulting drop in corporate profits has led to corporate reluctance to make more fixed-asset investment.

Against the backdrop of monetary easing by some major economies, such as Japan and the US, the world is tempted to adopt quick-fix solutions, although they will do little to improve the fundamentals of the crisis-battered global economy.

The author is a senior writer with China Daily.