NEW YORK/LONDON – The struggles of the US and euro zone economies intensified in July, surveys showed Tuesday, though improved Chinese factory output suggested stimulus measures were starting to boost the world's second-largest economy. Europe's private sector looked set for a prolonged slump as surveys showed the downturn that began in the euro zone's small economies has since become entrenched in Germany and France. Business activity in the 17 states that use the euro shrank for a sixth straight month in July. Manufacturing nosedived, notably in Germany, suggesting recession ahead. Europe's malaise infected businesses across the Atlantic. US manufacturing this month grew at its slowest pace since December 2010, hobbled by a decline in overseas demand, according to financial information firm Markit. Whirlpool Corp, the world's largest appliance maker, cited weak demand in Europe and a stronger dollar for its quarterly earnings miss, wh ile Te xas Instruments Inc's warned that its third-quarter revenue would be weaker than usual due to global economic uncertainties. "The slowdown in manufacturing is a concern. We are seeing that the effect from Europe is weighing on US manufacturing, and manufacturing is one of the few bright spots in this recovery," said Craig Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee. The Richmond Federal Reserve Bank 's monthly manufacturing composite index in July was the weakest reading since April 2009. In Europe, manufacturing in Germany, the euro zone's biggest economy, contracted at its fastest pace in more than three years and its service sector also shrank. In France, factory activity fell at its fastest pace since May 2009. The surveys should increase expectation s in financial markets for the US Federal Reserve and European Central Bank to do more to help their respective economies. In China, the news was more encouraging, suggesting a series of policy measures, including interest rate cuts, may be starting to revive an economy that had slowed sharply of late. HSBC's Flash China manufacturing purchasing managers index, the first significant set of data in the third quarter, r ose to 49.5 in July from 48.2 in June, closer to the 50 level that divides expansion from contraction. The increase was driven by a jump in the output sub-index to 51.2 - the best showing since October 2011. The PMI "adds to recent signs of stabilization of the Chinese economy, thus underpinning our view that the slowdown in activity will bottom out over the summer months," said Nikolaus Keis at UniCredit. Chinese economic growth in the second quarter cooled to 7.6 percent from a year earlier, its slowest pace in more than three years, but still way ahead of the United States and the euro zone, which has likely fallen back into recession. For Nomura's chief China economist, Zhang Zhiwei, the PMI provided further evidence that a slowdown in China's economy bottomed out in the second quarter of 2012. "This suggests the effect of policy easing is being transmitted to the economy and reinforces our view that growth has bottomed in Q2," Zhang said. – Reuters
