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Summary

  • The global PMI fell slightly from 53.5 in March to 52.8 in April but this overall number masks substantial differences between countries.
  • Emerging markets have been hit particularity hard by the Federal Reserve’s tapering of asset purchases and the ensuing reduction in liquidity and capital flows that have occurred as a result.
  • Judged by the PMIs, economies like Brazil and India are underperforming advanced countries and have slowed considerably over the past eighteen months.
  • In this week’s ‘chart of the week’, we briefly run through some of the domestic stories behind this divergence.

By: Philip Lachowycz, Fathom Consulting

The Chinese PMI rose in April but the HSBC composite number is still sub-50. China is not driving world growth at the moment - far from it. The economy has slowed - its manufacturing HSBC PMI was the weakest in the world in April. The question is now how hard it will land? We expect that the authorities will fight the slow-down and turn on both the monetary and fiscal taps. Despite this, in our central case growth slows to around 7% this year.

The Chinese PMI rose in April but the HSBC composite number is still sub-50. China is not driving world growth at the moment - far from it. The economy has slowed - its manufacturing HSBC PMI was the weakest in the world in April. The question is now how hard it will land? We expect that the authorities will fight the slow-down and turn on both the monetary and fiscal taps. Despite this, in our central case growth slows to around 7% this year.

European economies continue to recover in a slow but steady fashion. Ireland is the stand-out but even France, which continues to lag behind other European countries, has seen its composite PMI in expansionary territory for the past two months. Inflation remains the key question for the euro area. Countries with high debt loads need strong nominal rates of growth. Low inflation threatens the single-currency union, even with economic expansion.

Japan and the UK appear at opposite ends of the PMI leader-board. Both countries have domestic factors at play. The initial goodwill sentiment of Abenomics has well and truly passed in Japan. Japan's PMI collapsed to 46.3 in April, from 52.8 in March as the increase in the sales tax impacted on activity. In the UK, there is a domestic housing boom, which is driving domestic demand.

Meanwhile, in our view, the US has well and truly turned the corner following the harsh winter weather. The US should expand at healthy rates of growth through the remainder of this year. The structural repair work has been done in the US, enabling the private sector to drive growth.

Source: What Are The PMIs Telling Us About The Disparities In Global Activity?