Factories across Europe and Asia cranked up production in March, business surveys showed on Thursday, showing a strong recovery in fast-growing emerging markets taking root in the developed West.
Activity across Europe bounced higher, with a cheaper euro stimulating exports, while in the UK it expanded at its fastest pace since 1994. China's vast industrial sector moved up another gear as well, beating expectations.
Comparable business data due later on Wednesday from the United States are also expected to show activity picked up from February. Key data due on Friday are also expected to show employers hired 190,000 U.S. workers in March after cutting 36,000 in February.
Stock markets were up across Asia and Europe on the first trading day of the second quarter, initially spurred higher by the upbeat data from China but underpinned by growing optimism for economic recovery from the worst downturn in generations.
We are seeing world trade booming, it's recovering very sharply. Emerging markets were driving this at the beginning but developed markets are also now catching up, said Nick Kounis, economist at Fortis Bank in Amsterdam.
Manufacturing in the euro zone grew faster than previously thought, with Markit's Purchasing Managers' Index (PMI) for the region jumping to 56.6 in March from 54.2 the month before.
In Germany, the 16-nation bloc's biggest economy, manufacturing activity grew at a rate not seen in almost 10 years. France, the second biggest, saw its manufacturing sector expand at a pace not seen since November 2006.
Across the channel, British manufacturing activity grew last month at its fastest rate since October 1994, when the economy was also recovering from a deep recession, but firms continued to cut jobs in a bid to reduce costs.
Debt-ridden euro zone member Greece, however, saw its manufacturing sector contract at a sharper rate.
China is back on course for the high single-digit percentage growth it saw before the financial crisis. While monthly data on production, sales and employment are improving in Europe, there are still doubts its recovery is as convincing.
Data on Thursday also showed German retail sales fell more than expected in February, suggesting that private consumption will drag on an export-fueled recovery that has soared on the back of a weakening euro.
The European Central bank is not expected to raise rates from their record low until early 2011 while economists think the Bank of England will not budge from 0.5 percent until late this year.
Australia, India and Malaysia have already started hiking rates and China is likely not far behind. Dealers see a 59 percent chance the U.S. Federal Reserve will follow suit before year-end.
China's official PMI rose to 55.1 in March from 52.0 in February, beating expectations and pointing to brisk first-quarter GDP growth that could spur further policy tightening by the central bank.
The headline PMI from a parallel HSBC/Markit survey rose to 57.0, the third-highest level in the six-year history of the survey, from 55.8 in February. A reading above 50 means activity is expanding.
Another substantially high headline manufacturing PMI reading, combined with strong growth of exports, points to an acceleration in industrial production and likely over 11 percent GDP growth in the first quarter, Qu Hongbin, chief economist for China at HSBC, said in a statement on Thursday.
With inflation pressures rapidly accumulating, this increases the risk of interest rate hikes in the coming months.
Investors are keen for more evidence that the recovery is gaining momentum to justify the optimism that has pushed U.S. and Japanese stocks to 18-month highs.
Strong demand from China, the world's third-largest economy, is proving a boon for its neighbors as Asia's major Western export markets have been far slower to recover.
South Korea reported March exports rose 35.1 percent from a year earlier, beating an expected 32.9 percent rise.
Taking into account that our main trading partners are China and other emerging markets and those markets are still flourishing, we can expect a positive outlook for the first half of the year, said Kim Jae-Eun, an economist at Hyundai Securities in Seoul.
Japan has also seen a steady recovery of exports, driven largely by sales to China, offsetting weak domestic demand.
The Bank of Japan's tankan survey on Thursday showed morale among big manufacturers, the main beneficiaries of the export rise, improved to its best since September 2008. Manufacturing activity slowed slightly in March, but a rise in export orders to the highest in almost six years suggested production will grow.
(Additional reporting by Langi Chiang and Alan Wheatley in Beijing, Yoo Choonsik in Seoul and Stanley White in Tokyo; writing by Kim Coghill; editing by Patrick Graham)