LONDON/SYDNEY (Reuters) - European and Chinese factories slashed prices in January as production flatlined, heightening global deflation risks that point to another wave of central bank stimulus in the coming year.
While the pulse of activity was livelier in other parts of Asia - Japan, India and South Korea - they too shared a common condition of slowing inflation.
Central banks from Switzerland to Turkey, Canada and Singapore have already loosened monetary policy in the past few weeks.
The European Central Bank also announced a near-trillion-euro quantitative easing program in a bid to revive inflation and drive up growth, though much of the bloc's manufacturing purchasing managers' index (PMI) survey was collated before that announcement.
"There are a lot of places where central banks are focusing on easing rather than anything else. In the euro zone the ECB is going all-out now," said Jacqui Douglas, senior global strategist at TD Securities.
The final manufacturing PMI for the eurozone from financial data provider Markit, published on Monday, was 51.0, in line with the preliminary estimate. Although at a six-month high, it was only just above the 50 mark that separates growth from contraction. In December the index came in at 50.6.
Worryingly for policymakers, firms cut prices in January at the steepest rate since mid-2013. Data on Friday showed annual inflation was a record-equalling low of -0.6 percent in January across the 19 nations using the euro.
In Britain, manufacturing grew slightly faster but factories cut prices at the fastest pace since 2009. The Bank of England will keep interest rates at a record low until at least October, later than previously thought, a Reuters poll found last week. [GB/PMIM] [BOE/INT]
"With oil prices having stabilized at around $45 per barrel now, it seems likely that lower oil prices should continue to enable manufacturers to lower prices and so support demand," said Paul Hollingsworth at Capital Economics.
Earlier Monday, surveys from China showed manufacturing struggling at the start of 2015 in the world's second biggest economy.
The Chinese HSBC/Markit PMI inched up a fraction to 49.7. But of more concern the official PMI, which is biased towards large factories, unexpectedly showed activity shrank for the first time in nearly 2-1/2 years.
The reading of 49.8 in January was down from December's 50.1 and missed a median forecast of 50.2. The report showed input costs sliding at their fastest rate since March 2009, with lower prices for oil and steel playing major roles.
Ordinarily, cheaper energy prices would be good for China, one of the world's most intensive energy consumers, but many economists believe the phenomenon is a net negative for Chinese firms because of its impact on demand.
The PMIs only fueled bets on a weaker yuan and that more monetary easing was in store in Beijing too.
"China still needs decent growth to add 100 million new jobs this year, plus China is entering a rapid disinflation process," ANZ economists said in a note to clients.
"We (think) the People's Bank of China will cut the reserve requirement ratio by 50 basis points and cut the deposit rate by 25 basis points in the first quarter."
Slightly better news came from Japan, where the central bank has been pursuing an aggressive bond-buying campaign for over a year in a bid to revive growth and shake the country out of decades of deflation.
The final Markit/JMMA PMI edged up in January as the sustained weakness of the yen drove up exports. Improving exports were also a feature of South Korea's PMI which returned to growth for the first time in five months.
India's manufacturing activity continued to grow, though the headline index eased slightly but importantly for the prospect of more policy stimulus, cost pressures were the mildest in 70 months as commodity prices fell.
In the Americas, the U.S. manufacturing sector expanded in January at roughly the same pace as in December which was the slowest rate in a year, according to Markit.
Markit's January final U.S. manufacturing purchasing managers index was unchanged from December 53.9.
Markit noted that some goods producers noticed "weaker spending patterns among clients in the oil and gas sector," which caused new business growth to weaken.
An alternative gauge of U.S. manufacturing from the Institute of Supply Management showed the pace of growth slowed in January with the index falling to 53.5 from 55.1.
Manufacturing sector activity also slowed in Canada in January to its slowest pace in over a year-and-a-half. The RBC/Markit Canadian manufacturing PMI fell to a seasonally adjusted 51.0 last month from 53.9 in December, the lowest level since April 2013.
The price of oil has more than halved in recent months, which is a problem for Canada as it counts oil as a major export.
However, in Brazil manufacturing activity increased the most in a year in January, the HSBC/Markit survey showed. The Brazil HSBC/Markit manufacturing PMI rose to a seasonally adjusted 50.7 in January from 50.2 in December.
Editing by Ross Finley, John Stonestreet and Clive McKeef