BRIC Services PMIs: Supporting Global Growth

Includes: BKF, EEB, EMDD
by: Constantin Gurdgiev

BRIC Services PMIs for January signal continued expansion in the world's largest emerging economies.

Brazil Services PMI remained at a disappointing 45.1 in January, the same as in December 2016, implying a relatively steep rate of economic contraction in the sector. This marks the 23rd consecutive month of sub-50 readings for the indicator, almost on par with the 24 months-long sub-50 readings run for Manufacturing. The current 3-month moving average for Services PMI is at 44.9, marginally up on the 3-month average of 44.0 for the previous period and on the 3-month average of 44.5 through January 2016. The current 3-month average for Services is in line with the 3-month average of 45.1 for Manufacturing. Both sectors are signalling continued steep decline in the economy battered by two years of recessionary dynamics and no signs of a light at the end of that tunnel.

In contrast to Brazil, Russia Services PMI posted another steep acceleration in growth, rising from 56.5 in December 2016 to 58.4 in January 2017, the highest reading in 102 months. As a reminder, Russia's Manufacturing PMI reached a 70-month high in January at 54.7. The Russian Services sector now posted 12 consecutive months of above-50 readings, implying that the Russian recession is now over (with the Manufacturing PMI reading above 50 for 6 months in a row). The 3-month moving average through January is at blistering 56.5, up on an already solid 3-month previous reading at 53.1 and significantly up on the 3-month average of 48.2 through January 2016.

Chinese Services PMI posted a slight moderation in growth, from 53.4 in December 2016 to 53.1 in January, with the current 3-month average at 53.2, up on the average of 52.2 for the previous 3-month period and on the 3-month average of 51.3 through January 2016. Chinese Services PMI has never registered a sub-50 reading in its history.

India Services sector PMI continued to post sub-50 readings for the third month in a row, coming in at 48.7 in January, compared to 46.8 in December. On a 3-month average basis, January's reading is at 47.4, which stands in sharp contrast to the sector fortunes in the previous 3-month period (53.7 average) and compared to the January 2016 3-month average at 52.7.

The table below summarises both Manufacturing and Services PMIs for the BRICs:

The chart below shows the dynamics in monthly Services PMIs:

While the second chart shows current (1Q 2017) performance in quarterly data context:

The key point of the above chart is the strong co-movement between Global PMI and the Russian and Chinese PMIs for the sector. As I noted back in September, this is a strongly positive sign of the global economy gaining some much-needed growth momentum.

Clearly, Russia leads the growth momentum within the BRICs, with China providing supporting uplift. India and Brazil act as major drags on global growth across the Services sector.

Note: I covered BRIC Manufacturing PMIs in an earlier post here.