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The global economy slowed in December as rising COVID-19 case
numbers dented the service sector expansion. The fresh virus wave
comes at a time when the manufacturing sector is reporting an
easing of supply constraints, which had helped raise production
levels.
The key risk to watch going into 2022 will be whether the
Omicron variant further subdues growth and disrupts supply chains
once again, just as the demand recovery from the pandemic fades
away.
Global economic growth slowed at the end of 2021 amid rising
COVID-19 infection rates, though remained robust. The JPMorgan
Global PMI™ (compiled by IHS Markit) fell from 54.8 in November to
54.3 in December, a three-month low.
Compared with a pre-pandemic long-run average of 53.6, the
latest reading signals above-trend annualised quarterly global GDP
growth of approximately 3-3.5%.
The data therefore point to steady economic growth in the fourth
quarter as a whole, with the rate of expansion ticking slightly
higher compared to the third quarter but remaining well below the
growth surge seen in the second quarter.
Global PMI and GDP
Omicron drags on service sector but factories benefit
from easing bottlenecks
The PMI was pulled lower by a slowing of service sector growth,
which slipped to the weakest for three months. In contrast,
manufacturing growth accelerated to the fastest since July, albeit
running behind that of services for the ninth month running.
Global PMI and Covid-19 containment
* IHS Markit's COVID-19 Containment Index is based on a
basket of measures applied by governments to control the spread of
the pandemic, such as non-essential business closures, school
closures and travel and mobility restrictions linked to social
distancing policies. As these measures are tightened, the index
rises towards 100 and a relaxation of measures causes the index to
fall towards zero.
The weaker expansion of the manufacturing sector relative to
services in recent months has been a function of the service sector
benefitting from the opening up of economies after COVID-19 related
lockdowns, while manufacturing has struggled amid ongoing supply
constraints.
However, December saw both of these trends move into reverse
somewhat. Rising COVID-19 infection rates, fueled by the widening
spread of the Omicron variant, led to renewed restrictions (both
imposed and voluntary) on face-to-face service sector activity in
some economies during December. Manufacturers meanwhile reported
that constraints on production had eased, though nonetheless
remaining a significant drag on production in many cases.
Supply constraints ease
Measured globally, the number of companies reporting that output
was constrained by raw material or staff shortages fell for a
second month in December, down from an unprecedented peak in
October, albeit still running almost three times higher than the
long-run average.
The degree to which supplier delivery times lengthened also
moderated for a second successive month during December to the
lowest since March, hinting that - although supply chains remain
under pressure - the worst may be over in terms of average supplier
lead-times.
Global manufacturing supplier delivery
times
This alleviation of the supply crunch is underscored by the PMI
surveys also showing the number of companies reporting items in
short supply to have fallen to the lowest since February,
suggesting that shortages peaked back in June.
Most prominent was a further reduction in the number of
companies reporting semiconductors to have been in short supply,
which dropped in December to the lowest since January of last
year.
Demand recovery wanes
However, it should be noted that the further COVID-19 wave from
Omicron poses a risk to future growth via renewed production and
supply chain disruptions. Note that the latest - December - PMI
data were collected at a time of COVID-19 case numbers continuing
to rise.
Furthermore, just as the supply chain squeeze is showing signs
of alleviating, the global demand recovery is showing signs of
fading. Measured by the number of companies globally that reported
rising demand to have contributed to higher inflows of new orders,
the PMI surveys indicate that the demand recovery peaked in June
2020, with a second demand wave peaking one year later in June
2021. Since then, the contribution from demand to rising order
books has been on a downward trend, sliding in December to the
lowest since April 2020, at the start of the pandemic.
US leads developed world expansion
Looking at the major developed economies, the US led the
expansion in December, with growth showing greater resilience
compared to the UK and Eurozone, where growth rates slowed sharply.
The most notable divergences were evident in the service sectors,
linked to the increase in COVID-19 restrictions in Europe. Whereas
UK and Eurozone growth rates slipped sharply to ten- and nine-month
lows respectively, the US saw only a very marginal slowdown.
Japan meanwhile continued to lag, reporting slightly weakened
output growth in both manufacturing and services, though continued
to pull out of the Delta-wave induced downturn recorded between May
and September of last year.
Output in the major developed markets
India leads emerging markets
Looking at the four largest emerging markets, India reported the
fastest pace of growth for the fifth month running in December,
albeit with growth slowing in both manufacturing and services to
the weakest since September, as the Delta wave rebound faded and
new virus worries intensified.
COVID-19 factors also inhibited growth in both Russia and
Brazil, the former more or less stalled on the back of a third
month of falling service sector activity and the latter seeing
growth hold at the six-month low seen in November thanks to an
ongoing manufacturing downturn.
In contrast, China saw a marked pick up in the rate of growth,
with activity rising at the fastest rate since July as businesses
in manufacturing and services continued to recover from the Delta
wave disruptions, aided in part also by demand rising thanks to
government measures to reduce prices.
Output in the major emerging markets
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
