3/10/18: Global PMIs tanked in 3Q 2018

While Markit continue to publish Services and Composite PMIs for BRIC economies, here is a quick update on Global PMIs for 3Q 2018 which are now out:

• Global Manufacturing PMI averaged 52.5 in 3Q 2018, down from 53.2 in 2Q 2018. This is the lowest reading for the index in 8 quarters, signalling slowest growth in global manufacturing sector since 3Q 2016. It also marks the second consecutive quarter of declining Global Manufacturing PMI.
• Global Services PMI averaged 53.5 in 3Q 2018, the lowest reading in 7 consecutive quarters, matching the lowest point in 8 consecutive quarters. This marked the first quarter of declines in Services sector activity, and the drop was sharp: down from 54.2 in 2Q 2018.
• Global Composite PMI averaged 53.3 in 3Q 2018, down from 54.0 in 2Q 2018 and 54.2 in 1Q 2018, marking the lowest reading in 8 consecutive quarters. The slowdown in the overall global economic indictor has also been sharp in 3Q 2018 and most of this slowdown took place in August and September.

Overall, these are not great signs for the global economy. 

For BRIC Manufacturing PMIs analysis for 3Q 2018, see here: http://trueeconomics.blogspot.com/2018/10/11018-bric-manufacturing-pmi-dips-down.html. BRIC Services PMIs and BRIC Composite PMIs analysis is to follow, so stay tuned.

9/10/17: BRIC Composite PMI 3Q: Failing Global Growth Momentum

Two posts above cover Manufacturing PMIs and Services PMIs for 3Q 2017 for BRIC economies. The following updates Composite PMIs performance.

Global Composite PMI came in at 53.7 in 3Q 2017, matching exactly 1Q and 2Q 2017 readings and basically in line with 53.6 reading in 4Q 2016. In other words, Global Composite activity PMI index has been showing relatively robust growth across the two key sectors for the last 4 quarters running. 

In contrast to Global indicator, BRIC economies posted relatively underwhelming performance with exception of Russia.

• Brazil Composite PMI index stood at 50.0 (zero growth) in 3Q 2017, which is a marginal gain on 49.8 in 2Q 2017. This marks the first time since 1Q 2014 that Brazil Composite indicator reached above the outright contraction levels, but it is a disappointing reading nonetheless. For one, one quarter does not signal stabilisation in Latin America’s largest economy. Worse, Brazil’s economy has been performing poorly since as far back as 2H 2011. It will take Brazil’s Composite index to hit above 52 mark for 2-3 consecutive quarters to start showing pre-2011 levels of activity again.
• Russia Composite PMI, on the other hand, remains the bright spark in the BRIC’s dark growth universe. Although falling to 4 quarters low of 54.1 in 3Q 2017, the index remains in strong growth territory. 3Q 2017 marked 6th consecutive quarter of robust post-recession recovery, consistent with 2.5-3 percent growth in GDP, quite ahead of the consensus forecasts from the start of 2017. The last quarter also marks the sixth consecutive quarter of Russian Composite PMIs running above Global Composite PMIs. This means that for the last 18 months, Russia has been the only positive contributor to Global growth from amongst the ranks of the BRIC economies.
• China Composite PMI firmed up in 3Q 2017, rising to 51.9 from 51.3 in 2Q 2017. 3Q 2017 reading was, however, the second weakest in the last four quarters and suggests relative weakness in the growth environment. 
• India composite PMI fell below 50.0 mark in 3Q 2017, reaching 48.7 - a level signifying statistically significant contraction in the economy for the first time since 4Q 2013. The robust recovery in 2Q 2017 put India Composite PMI at 52.2, but this now appears to be a blip on the radar which shows anaemic growth in 4Q 2016 and 1Q 2017.

As chart above clearly shows, the growth dynamics as indicated by the Composite PMIs have been weak in the BRIC economies over the last 4 consecutive quarters. This is highly disappointing, considering that 4Q 2016 held a promise of more robust expansion. Russian growth conditions have now outperformed Global growth dynamics in every quarter since 2Q 2016, although the latest reading for PMIs suggests that this momentum has weekend in 3Q 2017. In fact, Russian data is quite surprising overall, showing growth conditions largely in line with pre-2009 levels since 4Q 2016. This is yet to be matched by the GDP figures, suggesting that something might be amiss in the PMI data. 

Finally, the chart above shows sectoral dynamics for BRIC group of economies in terms of PMI indices. Both Services and Manufacturing PMIs for BRIC grouping are now running close to or below statistical significance levels for positive growth. More importantly, on-trend, current performance remains within the bounds of growth consistent with H2 2013-present trend: shallow, close to statistically insignificant expansion, that is distinct from robust growth in pre-2008-2009 period and the short period of post 2009 recovery.

Thus, PMI data still indicates that BRIC economies currently no longer act as the key drivers of global growth.

3/2/17: Global Composite PMI signals improving growth in January

Over the last four months, I have been suggesting that markets participants pay close attention to Global PMIs, and in particular to the emerging signals of firming global economic growth. January 2017 figures did not disappoint on this front.

I covered Manufacturing PMI yesterday in a post available here.

Today, we got the reading for Services and Composite data. Both printed 53.9, which marks statistically significant expansion and a rise on 4Q 2016 figures, suggesting that global growth is still accelerating. Crucially, new orders are continuing to rise as well.

Per Markit: “The J.P.Morgan Global All-Industry Output Index… posted 53.9 in January, its best reading since March 2015 and up from 53.6 in December. The index has now signalled expansion for 52 consecutive months.”

One caveat is that China data is not included in both Manufacturing and Services PMI readings. But, As shown here: China Manufacturing PMI posted lacklustre performance in January, barely staying above 50.0 level.

Again, quitting Markit, “growth of global service sector business activity improved to a 17-month high in January, offsetting a minor easing in the rate of expansion of manufacturing production.”

Geographically, “the acceleration in the rate of increase in all-industry output was led by the US and Russia. US growth was the sharpest since November 2015, while Russia registered its quickest expansion of economic activity for over eight-and-a-half years. The euro area saw output growth steady at December’s 67-month record, while rates of increase slowed in Japan and the UK. India and Brazil both saw all-industry activity decline at the start of 2017.”

“Global employment rose again in January, with the pace of job creation matching December’s 19-month record.” Again, geographically, employment “…increased in the US, the eurozone, Japan, the UK, Russia and India, but fell further in Brazil.”

Crucially for monetary policy forward, inflation ticked up as well.

Overall, Global Manufacturing PMI remained at rather robust levels of 52.7 in January 2017, comparable to those attained at the end of 4Q 2016 and well above the 51.4 average for the last 4 years. Global Services PMI ended January 2017 at 53.9, which is above already robust 53.5 recorded in 4Q 2016 and above the 4-year average of 53.4. At 53.9, Global Composite PMI is slightly ahead of 4Q 2016 levels (53.6) and is well above 53.0 average for the last 5 years. Thus, across both sectors, the global economic expansion appears to be improving to the upside at the start of 1Q 2017.

Analysis of BRIC Services and Composite PMIs coming up as soon as we have China data.

5/1/17: Global Growth Upside: More BRICs, less B

Back at the end of 3Q 2016, I contributed a chart to +Business Insider feature covering most important trends that analysts' keep an eye over. You can see the chart here: http://trueeconomics.blogspot.com/2016/09/22916-most-important-charts-in-world.html.

The key to global growth, in my opinion, will be recovery led by the emerging markets, and in particular - by world's largest emerging economies, the BRICs.

That was then, and this is now:

Observe the global growth trend implied by 4Q Composite PMIs:

1. We have a second quarter uptick in global growth. What was fragile bounce back from the 2Q 2016 low of 51.1 to 3Q 2016 reading of 51.7 is now a robust push up in growth terms to 4Q 2016 reading of 53.4 - the strongest growth signal since 3Q 2015. 
2. Two of the BRICs economies: Russia (4Q composite PMI average at 55.4) and China (4Q 2016 composite PMI average of 53.1) are leading the above trend.
3. India is on a surprise downside, most likely attributable to series of policy errors (including demonetization), which (for now) is not yet a new trend to the downside. Should Indian economy get back to its 'normal' running order, BRICs contribution to global growth will pick up and global PMIs will be supported even further to the upside.
4. Brazil, however, is a long term worry. Latin America's largest economy is in deep trouble, dragging down both BRIC growth prospects and the strength of the overall emerging markets growth.

What are the headwinds to watch?

1. China is the obvious one. Current level of activity, including that signalled by the PMIs, is simply too exposed to monetary and fiscal stimuli, and, thus, highly risky. 
2. Russia is another concern. Russian recovery from the recession is still fragile and requires continued confirmation, especially in Manufacturing sector. On the brighter side: improving commodities prices, and better prospects for monetary easing (due to significant decline in inflation pressures) are offering some hope forward. On the darker horizon, however, political cycle (2018 Presidential election) and geopolitical climate (elevated risks vis-a-vis Russian relations with the West and ongoing geopolitical rebalancing in Central Asia, Asia-Pacific, Eastern Europe and Middle East) present higher risks to the downside to growth.
3. Brazil is simply a basket case that will have to go through a painful process of structural deleveraging and political re-balancing. However, as the rate of contraction in Brazil's economy moderates over time, BRIC's growth momentum will also improve as a group.

So keep a closer eye on those PMIs coming in 1Q 2017.

7/1/16: BRIC Brake on Global Growth

As I noted in analysis of the BRIC Composite PMIs (http://trueeconomics.blogspot.ie/2016/01/6116-bric-composite-pmis-december.html) December turned out to be another month when BRIC economic fortunes were weighing on the global economy.

As a reminder, overall 4Q 2015 BRIC Composite Activity Index stood at 99.0, down on 99.2 in 3Q 2015 and on 102.1 recorded in 4Q 2014.

Sectorally, both Services and Manufacturing Aggregate Indices for BRIC group of countries continued to trend down - a trend now running uninterrupted since the start of 2H 2010 and accelerating since 2H 2014 for Manufacturing.

Meanwhile, Global Composite PMI slipped in 3Q and 4Q 2015 below longer trend (that is still gently upward).

Chart below illustrates: