BRIC Manufacturing PMI January: A Test Of Stagnation?

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Includes: BIK, BKF, EEB, EMDD
by: Constantin Gurdgiev

I covered China Manufacturing PMI in an earlier separate note here with core conclusion that Chinese Manufacturing PMIs have been now running second worst in the BRICs group since July 2015, staying above only Brazil's - a country that is in an outright recession. PMI index came in at 48.4 in January, marginally up on 48.2 in December 2015, marking the 11th consecutive month of sub-50 readings. 3-month average through January 2016 is now at 48.4 against the 3-month average through October 2015 at 47.6. The current 3-month average is down significantly on the 49.8 3-month average through January 2015. The last time Chinese Manufacturing posted statistically significant expansion as measured by a PMI reading above 51.46 - the statistically significant growth marker - was back in July 2014.

India Manufacturing PMI posted a rise to 51.1 in January from 49.1 in December, with January's reading being the highest in 4 months. This sounds like good news, expect it is not. The reason is that at 51.1, the PMI is well below the historical average of 54.5. And it is below the January 2015 level of 52.9. 3-month average through January 2016 is at zero growth mark 50.0, which compared poorly to the 3-month average through October 2015 at 51.4 and worse relative to 53.6, which is the 3-month average through January 2015.

Market release was quite upbeat on India numbers, however, noting that "the industry recovered following the contraction seen at the end of last year. Alongside a resumption of output at some firms impacted by December's flooding, manufacturers also benefited from rising inflows of new business from domestic and export clients." The sectoral breakdown of the index is also concerning. Again, per Markit, "The consumer goods subsector remained the principal growth engine at the start of the year, seeing substantial expansions of both output and new orders. In contrast, producers of investment goods saw output and new orders fall, while production volumes stagnated in the intermediate goods category."

Russian PMIs were covered in a standalone post here with core conclusion that although Russia retained its position as the second strongest performing economy by Manufacturing PMIs in the BRIC group in January, the latest reading puts Russian Manufacturing in a stagnation zone too close to 50.0 to call it a full-blown contraction. This has meant that over the last 3 months, the Russian Manufacturing PMI averaged 49.7, a reading nominally below 50.0, although an improvement on the 49.1 average for 3 months through October 2015, and on the 49.4 3-month average through January 2015. In simple terms, Russian Manufacturing continued to contract in 3 months through January 2016, but the rate of contraction was virtually indistinguishable from zero growth.

This leaves us to cover Brazil Manufacturing PMI. Brazil Manufacturing index posted a rise in January, hitting an 11-month high of 47.4. By all normal metrics, this is a disaster territory reading, consistent with a rather sharp deterioration in trading conditions. But for Brazil - this was an improvement, especially as output and news orders both were contracting at slower rates in January.

Per Markit: "The downturn in the Brazilian manufacturing sector continued at the start of 2016, with levels of production and new orders contracting for the twelfth successive month. This continued to filter through to decisions relating to staff hiring, stock holdings and purchasing activity, all of which also declined during the latest survey month." On the positive (sort of) side, "output declined at weaker rates in each of the three production categories (consumer, intermediate and investment) covered by the survey. Underlying the latest decrease in output was a further reduction in the level of incoming new orders. The latest drop in inflows of new work received was mainly centred on the domestic market, as the volume of new export business expanded for the second straight month in January."

On a 3-month average basis, the 3-month average through January 2016 is at 44.5, which is worse than the 3-month average through October 2015 (45.6) and the 3-month average through January 2015 (49.9). In simple terms, Brazil remains the basket case of BRIC economies, leading the group to the downside on Manufacturing.

Chart and table below summarise the BRIC's outlook:

Click to enlarge

Click to enlarge

So, overall, the BRIC Manufacturing side of the economy is still in a woeful shape. India's return to growth is relatively weak, while contractionary conditions prevail in Brazil (strong, albeit moderating at the end of 2015), Russia (very weak contraction, closer to stagnation) and China (where PMI data has been at serious odds with official national accounts data for some time now). The net result for the global growth is not exactly encouraging.