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Manufacturing slowdown spreads further to services
US bucks slowdown trend, Europe close to stalling amid rising
political uncertainty
Emerging markets led by India and Russia but dragged down by
second-worst growth in China since 2016
The global economy started 2019 with the weakest monthly
expansion of business activity since September 2016. The JPMorgan
Global PMI, compiled by IHS Markit, hit a 28-month low of 52.1,
down from 52.7 in December, extending a slowdown that had been
evident throughout 2018 into the new year.
Manufacturing led the slowdown, with factory output rising at
the slowest pace in 31 months and slipping closer to stagnation
amid an increased rate of decline in worldwide export volumes.
However, the service sector likewise reported a weaker rate of
expansion, showing the smallest gain since September 2016 as the
slowdown broadened out and uncertainty spiked higher.
Other indicators added to the gloomier picture. New orders
expanded at the slowest rate since July 2016 and a second
successive marginal decline in backlogs of work hinted at the
development of spare capacity.
Job creation hit a 21-month low as hiring slowed in response to
the weakened order book trend and darkened prospects. Optimism
towards the year ahead regained some ground from December's
two-and-a-half year low, but remained subdued by recent standards
and well below levels seen this time last year.
US and India buck slowdown trend
Composite PMIs (covering manufacturing and services) indicated
that growth slowed in all major developed and emerging economies
with the exceptions of the US and India, both of which saw growth
hold steady on rates seen in December on the back of faster
manufacturing expansions.
Diverging developed world trends
The US continued to lead the developed world expansion, the gap
widening with other major economies as faster manufacturing growth
accompanied a steady improvement in the service sector, both
primarily reflecting solid domestic demand.
Despite the US showing resilience in January, with growth
holding steady on the robust pace seen in December, developed world
growth slipped to a 28-month low reflecting weakened trends
elsewhere.
The UK reported a near-stalling of growth as Brexit worries
intensified, with the composite PMI dropping to its lowest since
2012 with the sole exception of July 2016, when business faltered
in the immediate aftermath of the EU referendum in mid-2016.
Eurozone businesses also reported only modest growth, with the
composite PMI down to its lowest since July 2013. The surveys hint
at downturns in both Italy and France as well as much weakened
growth in Germany, often linked to rising political
uncertainty.
The divergence between the US and Europe consequently widened,
with the January PMIs indicating annualized growth of approximately
2.5% in the US compared to stagnation in the UK and just 0.4-0.5%
in the eurozone (0.1% quarterly)
Growth also faltered in Japan, with the PMI sliding to the
second-lowest level since the current upturn began in late-2016, as
manufacturing moved into contraction for the first time for over
two years. The disappointing survey data therefore hint at the
Japanese economy also growing only very modestly in the first
quarter.
Emerging markets hit by weakened China
Emerging market growth meanwhile faltered to one of the weakest
seen over the past year-and-a-half, mainly due to a slowdown in
China. The Caixin PMI composite output index, compiled by IHS
Markit, dropped from 52.2 in December to 50.9 in January, its
second-lowest since mid-2016. A weakened manufacturing performance
led the slowdown, though service sector growth proved far more
resilient. Encouragingly, the survey recorded a slight upturn in
exports for the first time in ten months and expectations of future
growth also ticked higher.
Meanwhile, only marginal slowdowns were seen in Brazil and
Russia, with both enjoying relatively solid growth by recent
standards. India was consequently the only major emerging market
not to see growth weaken compared with December, thereby sustaining
one of its best growth spells for several years.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
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.
