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IHS Markit's PMI business surveys showed the global economic
recovery continuing into July, but the rate of expansion lost
momentum for a second month running.
Slower growth could be in part linked to supply constraints and
further COVID waves from the Delta variant. Firms' backlogs of work
consequently rose globally at the fastest rate since 2004 in a sign
of supply running behind demand to a worrying extent. Prices
consequently rose sharply again, hinting the recent spike in
inflationary pressures has yet to peak.
Global growth cools further from May's 15-year
high
The global economy continued to expand at a solid rate in July,
according to the
JPMorgan Global PMI™ (compiled by IHS Markit), albeit with the
rate of growth cooling further from May's 15-year high to the
slowest since March. The expansion took the recent run of growth
into its thirteenth consecutive month.
Services again lead upturn as COVID restrictions are
further eased
The service sector led the upturn for a fourth successive month,
primarily reflecting the further opening-up of various economies
from COVID-19 containment measures. On average, global COVID
restrictions were eased in July to the lowest since the pandemic
began, according to IHS Markit's Containment Index.
Consumer services reported especially buoyant growth,
reflecting the opening up of tourism, travel and recreation
activities in many countries.
However, rising concerns over the Delta variant were often cited
as having contributed to a slowing of service sector growth for a
second month in July, and also dampened optimism about the outlook
to a seven-month low.
Supply constraints and rising demand push prices
higher
The worsening supply picture was highlighted by the
manufacturing PMI's
suppliers' delivery times index, which showed lead times
lengthening globally at a rate unchanged on that seen in June,
which had in turn been the most severe ever recorded since PMI data
were available in 1998. Production downturns were especially
commonly seen in COVID-hit APAC economies with low vaccination
rates, once again hitting the shipment of exports to the rest of
the world.
Service sector companies also often reported suppliers' delays
having hampered growth, while also noting labour shortages in many
countries, such as in the US and some parts of Europe.
The combination of strong inflows of new business and supply
constraints led to a rise in backlogs of work across the
manufacturing and services sectors of a magnitude not seen since
2004.
Not only did these supply constraints contribute to rising
backlogs and a slowing of global growth, input cost inflation also
accelerated as companies paid more for raw materials and
components.
Global input cost inflation across both manufacturing and
services consequently ticked higher in July, registering the
second-fastest rate of increase for 13 years after May's recent
peak.
Selling price inflation meanwhile eased slightly, though
likewise remained among the highest seen since the global financial
crisis as companies passed higher costs on to customers amid strong
demand.
While the rate of input cost and selling price inflation stayed
below May's recent peak, it clearly remains too early to discern a
turning point or peaking of global inflationary pressures,
especially given the worsening supply situation in July.
The July data serve as a reminder that the path of the virus and
vaccination rates remain critical to the functioning of supply
lines, and will dictate the balance of supply and demand globally
in the coming months.
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.
