Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
Global economic conditions appear to be improving as the latest Purchasing Managers’ Index (PMI) surveys indicated a modest acceleration in output and new orders during May.
The JPMorgan Global Composite PMI Output Index rose to 51.2 in May from April’s 17-month low of 50.8, signalling expansion for 28th month in a row.
This improvement comes amid a general pick-up in both current and expected global growth. Rates of expansion in output and new orders accelerated from April’s near one-and-a-half-year lows, while business optimism recovered after hitting its lowest level since May 2020.
The equivalent indices for manufacturing and services posted 49.1 and 52.0 respectively.
PMI is a key economic indicator measuring business activity in the manufacturing and services sectors. A reading above 50 signals expansion, while below 50 indicates contraction.
The JPMorgan Global Composite PMI is compiled from monthly survey responses collected from around 27,000 companies in over 40 countries, representing 89% of global GDP. The survey provides the first indication each month of worldwide economic business conditions, enabling decision makers in the financial world and in government to make better judgements much earlier than would otherwise be the case.
“The global all-industry output PMI recovered 0.4-pt to 51.2 last month, rising to a level consistent with trend-like global growth,” said Maia Crook, Global Economist at JPMorgan. “The increase was driven by a service PMI recovery, while a payback in activity from earlier front-loading weighed on the manufacturing output PMI.
Although the output PMIs diverged, both services and manufacturing showed an encouraging jump in business confidence, taking the all-industry future output PMI up 3.3-pts. The employment PMI also improved from prior recession-like levels.
Underlying this constructive global growth picture was a notable regional divide, as a sharp drop in China’s composite output PMI was offset by a US rebound.”
According to the report, the weakness was mainly centred in the manufacturing sector, where production returned to contraction following four months of expansion. Output declined in both the intermediate and investment goods sectors, although growth was sustained in consumer goods. In contrast, the service sector saw an acceleration in activity growth, with output rising across business, consumer, and financial services.
India remained at the top of the global output growth rankings, followed by Ireland. The US recorded a solid rate of expansion, while the euro area, Japan, and the UK saw modest or marginal improvements.
Mainland China, however, returned to contraction, with manufacturing output declining at the quickest pace since November 2022. Output also contracted in Germany, France, Brazil, and Canada, with Canada experiencing the sharpest downturn overall.
New business increased for 19th consecutive month in May, though only slightly. International trade remained weak, with new export orders falling for a second straight month. Only India and Australia registered increases in new export business.
May also saw employment rise for the second time in three months, as job creation in services offset losses in manufacturing. Optimism about future output improved significantly, with the Future Output Index rising from 57.4 to 60.7, although it remained below its long-run average for the 12th successive month.
Meanwhile, input cost and output price inflation both quickened. Input prices hit a 25-month high and output charges rose at the fastest pace in 14 months, mainly driven by stronger increases among service providers. In contrast, price pressures in manufacturing continued to ease.
