The global manufacturing slowdown
Category: Thought for the day
The first two working days of the month bring out a host of Purchasing Managers’ Indices across the world. The latest batch is out, and it presents a kind of in between story. Things are not good, that is for sure, but they are not disastrous. So who are the winners and losers across the world?
Before I get started, just to remind you, 50 is the magic number in these Purchasing Managers’ Indices or PMIs. Any score over 50 suggests expansion, below would signify contraction.
Let’s start with the UK. The story here is sort of promising. The headline index rose from 48.6 to 49.8. So that’s an improvement, but the reading is still below the crucial 50 mark. However, hope does lurk in the data. For one thing, 49.8 is in fact the highest reading this year. For another thing, the more forward looking output balance sub-index rose from 47.8 to 50.5. Most encouraging of all, the index tracking new export orders hit its highest level since July 2011. The story contained in the index seems to be one of modest improvement, but perhaps a bit more than modest when looking at exports. But it would be a mistake to make more of it than that.
In the Eurozone, the story is as follows:
Netherlands 48.2 2-month-high
Germany 48.1 4-month-low
Ireland 48.0 19-month-low
Austria 47.8 6-month-low
Italy 45.5 2-month-high
Greece 45.0 21-month-high
Spain 44.7 2-month-high
France 44.4 4-month high
Overall, the manufacturing PMI for the region was 46.7, which was a four month low. So, there is no hint here of the Eurozone moving out of recession. It was good to see the Greek PMI hit a 21 month high, but it is still very low. As for France, it does seem a lot of those predictions of doom relating to France seen last year are being borne out.
Abeonomics is in the news a lot these days, so let’s see what going in the land of the rising sun. What difference is the new regime making with its more dovish approach to monetary policy? Well, Japan’s manufacturing PMI rose to 51.1 from 50.3, hitting a 13-month high. More interestingly, the sub index tracking new orders – which is a good forward indicator – hit a 26 month high.
Now let’s turn to the US. For the world’s largest economy there are two PMIs. The version produced by ISM dropped from 51.3 to 50.7. But bear in mind that the index stood at 54.7 in February, so it has fallen very sharply over the last two months. The Markit version fell from 54.6 in March to 52.1, which is the lowest reading since last October. So the two indices suggest the US manufacturing sector is seeing a slow-down, although not contraction.
As for China, once again, there are two PMIs. The official version produced by China’s Federation of Logistics and Purchasing fell from 50.9 in March to 50.6. That is only a modest fall, but the index was already too low, and in any case April is usually a good month for the sector – so that is worrying. The PMI produced by Markit and HSBC, which tends to place more emphasis on smaller companies, posted 50.4 in April, which was down from 51.6 in March. But Markit pointed out that the index has been above the 50 level for six months now. At least that is something. Incidentally, for China the 50 reading appears to have a different meaning, and a score under 50 probably suggests lower growth than usual, rather than contraction. In summary the data is constant with China growing at a much slower rate than we have become used to – between 7 and 8 per cent seems about right.
Now let’s turn to the rest of the BRICs and a few other key emerging markets. The story is as follows:
India fell to 51.0, the lowest reading recorded since November 2011.
Indonesia was 51.7 in April, up slightly from 51.3 in March. It was the eleventh successive month above 50.
Russia fell for the second month running – from 50.8 to a four month low of 50.6.
Brazil was at 51.0, down from 52.9 in the previous month.
Vietnam saw 51.0 in April from 50.8 in March.
Mexico’s 51.7 was its joint lowest score in the 25-month survey history.
Poland was at 46.9, which was a 45 month-low.
And finally, we have the global manufacturing PMI published by Markit. This fell to 50.5 from 51.2.
So what does all this mean? It suggests global growth of around 3 per cent in April, which is much the same as in Q1, but better than Q4 2012.
All in all it’s a disappointment but not a disaster, but the disaster word might be apt when applied to the Eurozone.
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees