Surging domestic demand helped manufacturing growth in China and Russia pick up speed in August, according to business surveys on Wednesday that conversely showed a slowing recovery in European factories.
Purchasing managers indexes, which measure changes in business activity across thousands of private sector companies, showed diverging fortunes among euro zone manufacturers which expanded overall at their slowest pace since February.
Equivalent figures from the United States, are also expected to show an easing of manufacturing growth, adding to investor unease about a stalling recovery there, a concern the Federal Reserve has openly recognised.
The Markit Eurozone Manufacturing PMI for August dropped to 55.1 from 56.7 in July, marking its 11th month above the 50.0 mark that divides growth from contraction.
Manufacturing growth in Germany slowed in August although other recent data show Europe's biggest economy is expanding fast. Business in France accelerated but Italy and Spain saw their manufacturing indexes slip backwards.
"We are at a delicate juncture of the global business cycle. Globally there is a slowdown in the trade cycle which first affects the economies which are reliant on that," said Silvio Peruzzo at RBS.
"Just as they were benefitting from the acceleration in Q4 2009 and Q1 2010, they will now be subject to the downturn and this will amplify the divergence we are seeing."
Britain, a major euro zone trading partner, saw growth in its manufacturing sector slow more than expected last month, led by the weakest expansion in new orders for more than a year.
EMERGING MOMENTUM
In contrast, a pair of China's manufacturing surveys showed activity picked up last month, recovering from a government-engineered slowdown designed to calm an overheating economy.
Indian factories expanded apace in August, although slightly slower than in July, after Asia's third-largest economy grew at its fastest rate in nearly three years in the last quarter.
And the manufacturing sector of Russia — part of the BRIC quartet of new economic powers alongside China, India and Brazil — expanded at its fastest rate in 28 months largely thanks to the strong domestic demand.
HSBC's purchasing managers' index (PMI) for China rose to a three-month high of 51.9 in August from 49.4 in July, while the official index also rose, to 51.7 from 51.2.
Optimism that Beijing was succeeding in shifting towards more domestic-driven and sustained growth after a credit-fuelled spurt early this year helped lift Asian stocks and metals markets largely dependent on demand from China.
However, fears that recovery in the United States was petering out and could stall the global upturn led by export-driven Asian economies as well as Germany have haunted markets, pushing the global stock index down more than 3% last month.
"We expect China will have a relatively moderate slowdown over the second half of 2010, but weaker external demand from the United States and Europe still represent a significant downside risk in coming months," said Brian Jackson of Royal Bank of Canada in Hong Kong.
China's ever-growing influence showed up in Australia which grew 1.2% in the second quarter, beating market forecasts largely due to China's and India's voracious appetite for Australia's resource riches, from coal to wheat.
A U.S. PMI index due from the Institute for Supply Management is expected to ease to 53.0 in August from 55.5, still safely above 50 that separates growth from contraction.
Investors, however, will look at new orders data for any signs whether manufacturing growth can be sustained.
With unemployment stuck near 10% and the impact of the government's $862 bln economic stimulus fading, investors worry that even if the U.S. economy avoids a double-dip recession it may face a period of near-stagnation.
