Monday, September 12, 2016

11/9/16: BRIC PMIs: Services & Manufacturing - August

With full 3Q 2016 update on PMIs coming up relatively soon, and having not done monthly updates on the time series for some time now, here is a quick summary of BRIC Manufacturing and Services PMIs through August 2016:

On Manufacturing side:

  • Brazil remains firmly stuck under 50.0 and the talk about improvements in the economy is highly premature. The rate of contraction did slow down a bit in recent months, but getting worse more slowly is not equivalent to getting better. With 19 consecutive months of sub-50 readings, the manufacturing side of Brazil's economy remains deeply sick. Last time Brazil's manufacturing posted statistically significant growth was in March 2013. Ouch!
  • Russia has been posting volatile manufacturing PMIs headlines for some time now. August reversion of PMI to 50.8 - statistically indistinguishable from 50.0 - offers no change to this pattern. That said, Russian Manufacturing appears to be stable, as opposed to contracting. Last 3mo average is at 50.6 - which, statistically, signals zero growth. This compares somewhat positively against 48.6 3mo average through May 2016. Overall, Russian manufacturing has not posted statistically significant growth reading - based on PMIs - since December 2014, with exception of one month (June 2016).
  • China's Manufacturing PMI posted a non-contractionary reading of 50.0 (zero growth) in August, down from 50.6 in July. In statistical terms, Chines manufacturing posted contraction or zero growth readings for 25 consecutive months now.
  • India continued to post significantly positive growth in manufacturing, based on PMIs. Over the last 8 months index reading stayed above 50.0 (statistically above 50.0 in 4 months out of 8). Current expansionary period in Indian manufacturing is now 8 months long and strengthening.
Chart below summarises trends in Manufacturing PMIs

The above shows that Manufacturing sectors are converging toward growth recovery in Russia and China, while India remains well-ahead of the rest of BRIC economies in terms of positive growth momentum. Brazil is on a clear downward trend and has decoupled from the other BRICs.

Services sectors:

As the above illustrates:

  • Brazil services sectors posted yet another month of declining growth, with rate of decline accelerating in August compared to July. This marks 18th consecutive month of negative growth in the services sector in the country. As with manufacturing, country services have been performing extremely poorly since March 2013, when structural (long-term trend) slowdown in growth kicked in.
  • Russia services sectors posted 7th consecutive month of above 50.0 readings, signalling relatively strong (albeit slower than in July) recovery. Over the last 6 months, Russia posted statistically significant growth in 5 months, which is rather solid sector recovery compared to the same period of 2015.
  • Chinese services sectors never posted a reading below 50.0 in the entire history of the time series. However, in August, the series reading of 52.1 was stronger the July reading and marked the third time the series were statistically above 50.0 over the last 6 months. This suggests some firming up in the services sector growth in China - a welcome relief to the rather pessimistic outlook projected by the PMIs in previous months.
  • India services PMI rose strongly to statistically significant reading of 54.7 in August, marking 14th straight month of above 50.0 readings (in level terms). August was the third month out of the last 6 months with statistically significant growth reading.

Just as with manufacturing, BRIC services sectors posted continuous improvements in trading conditions in India, China and Russia over the recent months. Brazil, however, remains significant drag on BRIC growth with no signs of convergence to the rest of the BRIC economies in sight.

Overall: both Manufacturing and Services PMIs suggest that BRIC economies as a group continue to act as a moderating factor on global growth trends. Although no longer dragging the global economy into growth recession, the block of largest emerging markets economies is not exactly propelling world growth to higher trend levels. However, more analysis on this later, with Composite indicators.

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