Thursday, January 5, 2017

4/1/17: BRIC Manufacturing PMI: 4Q 2016 and FY 2016


Manufacturing PMIs for BRIC economies are out for December, so let’s update my quarterly series. As readers of this blog know, I primarily switched away from covering monthly PMIs because there is little one can add to the Markit own analysis. Instead, I have been focusing on covering quarterly results.

Table below summarises key levels of average quarterly PMIs for Manufacturing:


Brazil’s continued recession, over the course of 2016 remained deeper, judging by Manufacturing PMIs than both 2014 and 2015. 4Q 2016 Manufacturing PMI reading came in at 45.9, which signals no change in the rate of contraction on 3Q 2016 (45.9) and a slight improvement on 4Q 2015 (44.5). All in, Brazil’s Manufacturing remained at below 50.0 reading for 11th quarter in a row, and controlling for statistical significance, the country Manufacturing sector have not seen any expansion since 1Q 2013. In these terms, the country is in a far worse shape than any other BRIC economy. FY 2016 PMI average for Brazil’s Manufacturing is at 45.1, which is worse than 2015 average (46.5) and 2014 average (49.6). Even in the dire days of 2009, Brazil’s Manufacturing PMI managed to average 48.2. In other words, Brazil’s state of Manufacturing currently is worse than at any time on record.

Russian Manufacturing PMI for 4Q 2016 came in at 53.2, marking second consecutive quarter of above 50 readings, and the first quarter of statistically significant expansion. This is a welcome sign, confirming economic recovery, albeit still fragile one. To call a full recovery we need to see at least one-two more quarters of above 52.0 readings. Nonetheless, 2016 FY average is at 50.6, which is way better than 2015 FY average (48.7) and 2014 average (49.6). In fact, 4Q 2016 reading is the highest in 23 quarters (we have to go back to 1Q 2011 to get a higher level) and the seventh highest since 1Q 2006.

Chinese Manufacturing PMI averaged 51.3 over 4Q 2016, up on 50.2 average in 3Q 2016. As in the case of the Russian Manufacturing, Chinese PMIs posted second consecutive quarter of expansionary readings (adjusting for statistical significance both 3Q and 4Q were not significantly above 50 line). However, unlike Russian Manufacturing PMI, Chinese Manufacturing PMI remained below 50.0 mark for FY 2016 (at 49.8) and this marked the third year in a row that the average FY PMI was below expansion line (2015 FY average was 48.7 and 2014 FY average was 49.7).

Not to forget about India: Indian Manufacturing PMI averaged 52.1 in 4Q 2016, down slightly on 52.2 average through Q3 2016, but up on 50.0 reading in 4Q 2015. FY 2016 average reading is 51.7, which is marginally better than 51.5 average for FY 2015, but worse than 52.1 average for the FY 2014. India now had 13 consecutive quarters of above 50 readings for Manufacturing PMI (controlling for statistical significance, just two consecutive quarters).

Key takeaways:

1) As the chart below clearly shows, Chinese Manufacturing PMIs have been bouncing within statistical zero growth range since the start of H2 2011. Russian Manufacturing PMIs exhibited broadly the same dynamics since the start of 2Q 2013. Brazil’s PMIs have been in a disaster zone from around the same time as Russia’s started signalling stagnation. In fact, with exception of 4Q 2012 and 1Q 2013, BRIC Manufacturing PMIs were in the doldrums since 3Q 2011 on. Which, sort of, exposes the lie of the Russian recession being caused by geopolitical risks and sanctions. It was not. The recession was long coming and its causes are coincident across China, Brazil and Russia, with India being an exception to the BRIC grouping throughout the entire period covered by data.


2) Also per chart above, BRIC Manufacturing is now on a recovery trend that is still requiring confirmation over the next 2 quarters. This trend is in line with Global PMI index trend for the sector.

3) Russia is now the strongest performing BRIC economy in Manufacturing terms, followed by India, and with a significant gap - China. Brazil, meanwhile, continuing to act as a drag on both BRIC and global Manufacturing growth.


As an aside: I am glad that my 3Q 2016 analysis for @businessinsider @AkinOyedele Most Important Charts feature is being confirmed by 4Q data as well.

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