Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

25186

Manufacturing surveys: What do they tell us about the health of the global economy?

RELATED TOPICS​

Graham Bishop, Investment Director at Heartwood Investment Management, on what Markit’s PMI surveys tell us about global growth trends…

July’s readings of the Markit Purchasing Manufacturers’ Surveys (PMIs) offered no real standout surprises. However, they seem to support our view that global growth is softening at the margin in the second half of this year, and that we are seeing less synchronised performance between economies. In fact, the improvement in global manufacturing over the last year may now have reached its cyclical peak. 
 
Our analysis shows that fewer countries are making a positive contribution to global manufacturing growth, a trend that has been building since March. Only 30 per cent of individual countries saw accelerating growth rates in July compared with nearly 80% of countries at the end of last year (based on the index change over the last three months).
   
There also appears to be more dispersion at the individual country level. Manufacturing surveys in the last three months show that developed economies are now outperforming emerging economies – a situation that contrasts with earlier in the year when we saw a higher degree of synchronisation in global growth. Emerging economies, especially the commodity exporters and to a lesser extent China, are contributing to this divergence. In the case of China, there remains a discrepancy between the official and ‘unofficial’ manufacturing surveys, which we monitor closely. Even among developed economies, though, we are seeing wider levels of dispersion at the country level. Much of the developed world’s current outperformance is attributable to the Eurozone members, while the UK is one of the weakest countries and the US is plateauing.
 
Manufacturing surveys are of course a proxy and do not tell the whole story about general economic conditions. However, they are an important barometer of overall business sentiment and, as we saw in 2015, the health of manufacturing can have important ramifications for the broader economy. 
 
We do not yet consider this moderation in activity to be overly concerning. Moreover, it is only to be expected that some of the froth has evaporated from the elevated readings seen earlier this year. For now, we believe that these slower rates of expansion signal the transition from a cycle of manufacturing improvement and recovery to one of stabilisation.
 
There is, though, one important caveat. The marginal softening in global manufacturing, and perhaps broader economic momentum, is occurring at a time when central banks are considering removing monetary policy accommodation. While we believe the current environment remains supportive to risk assets and corporate fundamentals, we are starting to take a more cautious view further out as policymakers continue to normalise monetary conditions. In consequence, we believe that it is prudent to begin reducing risk in portfolios incrementally.

Latest News

Iress has announced that it has extended its partnership with Dow Jones Newswires to give..
The Financial Conduct Authority (FCA) writes that in new rules, it has set out a..
GAM has announced it has reached a definitive agreement to transfer its Management Company activities..

Related Articles

infrastructure headline
The new Labour government has launched a GBP7.3 billion National Wealth Fund which will target private capital to support the UK’s growth ambitions...
The new Labour government has launched a GBP7.3 billion National Wealth Fund which will target private capital to support the..
Tom McPhail, lang cat
Today’s news of a landslide victory from the UK’s Labour party, finds that the markets had mostly factored in a widely predicted Labour win...
Today’s news of a landslide victory from the UK’s Labour party, finds that the markets had mostly factored in a..
Pensions might not feature at the top of the political parties’ manifesto promises this election, but their role in driving the UK’s growth ambitions is increasingly on investors’ agendas...
Pensions might not feature at the top of the political parties’ manifesto promises this election, but their role in driving..
Duncan Higgs, Bfinance
Bfinance has released its latest report, "Investment Management Fees: Fairness Revisited," with a comprehensive analysis of current trends and challenges in investment management fees and costs across various asset classes...
Bfinance has released its latest report, "Investment Management Fees: Fairness Revisited," with a comprehensive analysis of current trends and challenges..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by