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February PMI data pointed to the global economy recovering as
the Omicron wave faded, though this was prior to various
significant developments including the Ukraine invasion and recent
lockdowns in China amid the worsening COVID-19 conditions. March
PMI data will therefore be scrutinised for the impact of these
events on various economic metrics such as output, supply chains,
prices and upon the sole sentiment PMI sub-index - the future
output index.
PMI data show global economic growth revived in
February as Omicron wave faded
The global economy expanded for a twentieth straight month in
February, according to the JPMorgan Global PMI™ (compiled by
IHS Markit, now part of S&P Global). The rate of expansion
accelerated from January's 18-month low, with the PMI rising from
51.1 to 53.4 in February, which was a level broadly indicative of
global GDP growing at an annualised rate of just over 3% in
February. Services led the rebound while manufacturing output
likewise improved in February.
Global PMI and GDP
However, this was prior to various major developments in the
global economy, placing the focus on March PMI for the earliest
indication of how economic conditions had fared in what is a
significantly different climate when compared to February.
Surging commodity prices and the impact on inflation
for firms and consumers
Given the importance of energy prices for both goods and
services providers alike, the impact on input costs for firms - and
how this may be feeding through to selling prices - will be
scrutinised. Global selling prices had already been climbing at a
severe rate in February, reflecting existing supply bottleneck
issues, recovering demand and COVID-19 related effects, signalling
the continuation of elevated consumer price inflation which also
carries implications for monetary policy.
Flash PMIs released in the coming week on March 24, will
therefore shed light on changes in pace of price inflation.
Divergences may well appear, as the eurozone is expected to be hit
especially hard by the Ukraine crisis given the trade links, but
signs of persistent or accelerating price pressures are also
possible in the UK, US and APAC countries such as Japan and
Australia in March.
PMI prices charged and global inflation
Effect of the Ukraine crisis on eurozone
output
Disruptions to trade and financial flows owing to the
Russia-Ukraine conflict are expected to hamper eurozone growth in
March, which could show up in the PMI numbers. This is on the back
of
imposition of stringent restrictions on exports and some import
restrictions upon Russia. Given the export of key commodities
of oil and gas by Russia to the likes of EU and the UK, the
abovementioned transmission channel of higher energy prices and
potential supply constraints, higher costs may also act as speed
bumps for eurozone output growth going forward.
The degree to which different constituent countries and sectors
are affected may well vary, one which the country and Europe sector
PMI figures will help to decipher with the March releases. As it
is, the US, UK and eurozone exhibited strong recoveries in output
growth in February, but the trend from here will be less
certain.
Major developed markets PMI output
The effect of COVID-19 lockdowns on mainland China's
manufacturing and broader supply chains
Meanwhile, amid the surge in COVID-19 cases in mainland China,
whereby daily cases have risen to the highest in two years,
stricter restrictions have been imposed across the Jilin province
and China's key technology hub, Shenzhen. These new developments in
China have been set against a backdrop whereby
manufacturing production had only recently stabilised in February
according to the PMI survey data produced for Caixin by IHS
Markit, now part of S&P Global, and firms also reported lower
employment levels. Following the recent tightening of movement
restrictions, the ensuing impact on manufacturing in mainland China
will be in focus. The extents to which output growth and employment
is affected are the key topics of interest here, and likewise will
be important to consider for policy implications after authorities
recently set an ambitious target of around 5.5% GDP growth for
2022. With production halts already reported to have spread across
various multi-national companies operating in mainland China,
including Apple and car producers such as Toyota and Volkswagen,
the flash PMI data for the US, Europe, Japan and Australia will be
scoured for signs of fresh supply chain disruptions emanating from
such production halts.
Manufacturing growth in mainland China
Over in Hong Kong SAR, March figures will also provide an update
on economic conditions with the current COVID-19 wave yet to pass
its peak mid-March. Hong Kong equities have been severely impacted
in recent weeks as a result of the negative developments, which saw
the Hang Seng Index plunging to the lowest close since February
2016. Strong equity market correlations with the Hong Kong SAR PMI
suggest that further downsides should not be ruled out with any
indications of a further plunge in the PMI in March.
Hong Kong SAR PMI and equities
Business sentiment changes as a result of Ukraine
invasion and China lockdowns
Global business optimism had been at a decade-high prior to the
invasion of Ukraine according to the only sentiment-based PMI
sub-index, the future output expectations index. This was across
both the manufacturing and service sectors as the easing of the
COVID-19 Omicron wave lifted optimism amongst firms. As told, that
was prior to the Ukraine invasion and lockdowns in mainland China,
which may well prelude further supply chain issues. Fresh updates
on changes to business sentiment following recent developments will
be closely watched with the sub-index seen to be useful in the
forecasting the month ahead headline PMI in various cases.
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.
At the same time, business costs increased at historically elevated rates, with new record levels of cost inflation… https://t.co/ofDaBfq7KX
May 25
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