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Global economic growth slowed to a crawl in July, according to
the latest PMI survey data, led by the developed world falling into
contraction for the first time in two years. Both the US and
eurozone reported renewed falls in output and the pace of expansion
slowed in the UK and Japan, though growth in the major emerging
markets generally remained resilient. Worldwide manufacturing
output growth stalled and the recent surge in service sector
activity lost significant momentum.
Companies blamed tightening financial conditions, heightened
uncertainty linked to the Ukraine war, shortages and, most
importantly, high inflation for the deteriorating business
environment. Optimism about the year ahead likewise fell further in
July, prompting a pull-back in global hiring.
Encouragement came from a weakening of global inflationary
pressures, with average prices for goods and services rising at the
slowest rate for ten months thanks in part to lower input cost
inflation, though also attributable to the recent slowing of demand
growth.
Weakness spreads from factories to
services
Global economic growth slowed sharply in July, according to PMI
survey data compiled by S&P Global and sponsored by JPMorgan.
The headline PMI, covering output of both manufacturing and
services, fell sharply from 53.5 in June to 50.8 in July. The
latest reading signals only marginal growth and is the weakest
since the recovery from the initial pandemic lockdowns began two
years ago. Barring these lockdown months, the July reading was the
joint-second lowest for a decade, the current degree of malaise
exceeded only by the near-stagnation seen in February 2016. At its
current level, the PMI is indicative of annualised global GDP
growth of just 2%.
The worst performance was seen in manufacturing, where a
China-led resumption of global growth in June (after two months of
decline) faded to register no change in worldwide production
volumes. However, service sector growth also deteriorated, dropping
to the second-slowest since July 2020, to register only a very
modest expansion of activity.
Emerging markets report resilient growth
The most resilient performances in July were again reported in
the emerging markets. Growth slowed slightly in mainland China, but
remained among the highest seen over the past decade thanks to
sustained manufacturing growth and resurgent demand for services as
the economy continued to reopen from Omicron-related containment
measures.
Similarly, strong service sector expansions helped drive solid
growth in India and Brazil, though July saw a loss of growth
momentum in both cases as the stimulus from the reopening of these
economies showed signs of moderating. India notably enjoyed an
additional boost from an accelerating manufacturing sector.
Faster service sector growth also helped keep Russia in
expansion territory during July, with overall growth hitting a
13-month high despite a further steep downturn in manufacturing,
linked to war-related sanctions and slumping exports.
Emerging market growth as a whole consequently remained broadly
resilient at one of the fastest rates seen over the past decade
thanks to its recovering service sector, though lost some pace
compared to June.
US leads developed world output lower
In the major developed world economies, output fell in the US
for the first time in two years, and likewise slipped into decline
in the eurozone. Excluding pandemic lockdown months, these
performances were the worst recorded since 2009 and 2013
respectively, and represent marked turnarounds from the rapid
expansions seen earlier in the year following the reopening of
economies from COVID-19 containment measures.
The robust growth seen in Japan during June meanwhile gave way
to near-stagnation in July, and growth in the UK sank to a 17-month
low.
Manufacturing output contracted in all four largest developed
economies in July, with the US also seeing a contracting service
sector and services growth weakening in all other cases.
The developed world consequently fell into a slight contraction
in July, with output falling for the first time in two years and -
prior to the pandemic - for the first time since 2012.
Demand growth at two-year low
Demand growth meanwhile continued to deteriorate in July. New
orders placed for goods fell globally for the first time in two
years, registering one of the worst demand downturns seen over the
past decade (albeit still only modest), while new business placed
at service providers grew at the joint-second weakest rate since
January 2021. The resulting overall rise in demand signalled was
the softest for two years.
Indications of spare capacity
The pull-back in demand growth meant firms ate into
previously-placed orders to keep workforces busy, resulting in the
first drop in backlogs of work for nearly a year-and-a-half. The
decline in backlogs was recorded in manufacturing and services, as
well as in both developed and emerging markets on average, and is a
development which is typically followed by companies reducing their
staffing levels. In July, jobs growth merely slowed globally, down
to a six-month low, but the fall in backlogs provides a strong
signal of a weakening employment trend in the coming months, absent
a revival in demand.
Brazil reported the steepest job gains in July, followed by the
UK, US and eurozone, though in all cases rates of job creation
slowed. Net job losses were meanwhile recorded in mainland China,
and only modest employment growth was seen in India and Japan.
Year-ahead optimism at 22-month low
A reticence to hire was also linked to a deterioration in
business confidence about the year ahead. Firms' expectations about
their output in the coming 12 months fell globally to a 22-month
low in July, worsening from peaks seen back in February to a
22-month low in services and a 26-month low in manufacturing.
Future expectations are running especially weak by historical
standards in India and the eurozone, the US and the UK. On the
other hand, sentiment remained encouragingly buoyant in Brazil and
Japan, and has lifted slightly further above its long-run trend in
China.
Gloomier prospects were commonly associated with worries about
the resilience of demand in the months ahead, especially with
monetary policy being tightened aggressively in many markets and
the Ukraine war continuing to dampen risk appetite. Companies also
continued to worry of supply availability for various inputs,
including energy.
Cost pressures at five-month low
Perhaps most importantly, companies have also grown increasingly
concerned about the impact of rising prices on spending power, with
consumer price inflation having reached its highest for four
decades in the US and Europe. However, the July PMI surveys brought
some welcome news in this respect, with input cost inflation
slowing globally for a second month in a row to reach a five-month
low.
Price pressures have moderated most noticeably in manufacturing,
with service sector input cost inflation now running ahead of that
seen in manufacturing, reflecting the service sector's greater
exposure to labour costs, with wage growth rising in July. Measured
globally, the number of companies reporting higher prices due to
the pass-though of higher staff costs has risen to an all-time
high, running at over three times the long run average.
Selling price inflation at ten-month low
Despite the increase in wage pressures, the overall reduction in
input cost growth thanks to lower industrial goods prices and
falling energy costs (notably oil) fed through to lower selling
price inflation globally for both goods and services. Across both
sectors, the increase in selling prices was the slowest for ten
months, auguring well for consumer price inflation to peak
soon.
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.
The global macroeconomic environment, geopolitics and central bank policy are viewed as the biggest drags on the US… https://t.co/5l5pA4B9U8
Aug 09
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