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Downside risks to outlook as future expectations hit new survey
low
Weakness spread across developed and emerging markets
The pace of global economic growth remained stuck at a
three-year low in June, according to the latest PMI surveys from
IHS Markit, rounding off the worst quarterly expansion since the
second quarter of 2016. Both employment growth and cost pressures
also hit the weakest since 2016, while future business expectations
sank to a new survey low.
A disappointing run of developed world PMI surveys for June
concluded the slowest quarter of growth since 2013, with falling
output in the UK accompanied by lacklustre growth in the US, Japan
and Eurozone, albeit with the latter enjoying the strongest
upturn.
Emerging market growth meanwhile hit a three-year low amid a
broad-based deterioration in performance among the largest
developing economies. Output fell in Brazil and Russia while slower
expansions were seen in both China and India.
Slowest global growth since June 2016
The JPMorgan Global PMI™, compiled by IHS Markit, held steady at
51.2 in June, signalling the slowest rate of expansion of global
output since June 2016 during the past two months. The survey data
are consistent with worldwide GDP rising at an annual pace of
approximately 1.8% (at market prices) in the second quarter, down
from 2.4% in the first quarter.
Both the PMI and official GDP data indicate that the pace of
global economic growth peaked at 2.9% at the end of 2017 and has
since slowed gradually, led by a steady weakening of worldwide
trade flows.
Manufacturing remained the main area of weakness in June, with
output falling for the first time since October 2012. Global goods
exports fell for a tenth successive month, dropping at the steepest
rate since September 2015.
Although service sector growth perked up slightly during the
month, the rise in activity was still among the weakest seen over
the past three years. The sluggish services expansion adds to signs
that the sector has seen growth weaken markedly in the second
quarter alongside the manufacturing malaise.
Jobs growth slows in response to weakened order book
inflows
New order inflows improved slightly on May but remained among
the weakness seen over the past three years, impeded by a second
successive monthly decline in manufacturing orders, which fell at
an increased rate. Service sector new business inflows picked up,
though continued to run well below levels seen earlier in the
year.
The weakened inflows of new work mean order book backlogs were
unchanged, indicating few capacity pressures. Employment growth
consequently slipped, down to the lowest since November 2016. A net
loss of factory jobs for the second successive month was
accompanied by reduced net hiring in the service sector.
Firms' appetite to take on extra staff was also hit by a further
reduction in companies' expectations of their own output in a
year's time (the only subjective question asked in the PMI
surveys), which fell to the lowest since data on the outlook were
first collected in mid-2012. Sentiment weakened in both
manufacturing and services during the month, the former remaining
especially gloomy.
Geopolitical concerns, trade war worries and less-optimistic
economic growth prospects were all commonly cited as encouraging a
further shift to risk aversion.
Cost pressures lowest since 2016
Cost pressures continued to moderate alongside the slowing
global economy, with weaker demand again often cited as having
diminished firms' pricing power. Input cost inflation slipped to
the lowest since September 2016. Average selling prices for goods
and services meanwhile rose globally at a slightly faster rate than
in May, though the latest rise was still the second-smallest since
November 2016. Prices rose most sharply for consumer services,
consumer goods and business services, where demand conditions have
remained the most robust. In contrast, prices fell for financial
services for the first time since 2016, linked to lower interest
rates.
Developed world sees worst quarter since
2013
Growth lifted slightly higher in the developed world, but the
improvement failed to prevent the rich-world economies enduring the
worst calendar quarter since the start of 2013. The sustained weak
PMI reading in June reflected a fourth consecutive monthly decline
in manufacturing output and the second-smallest service sector
expansion seen over the past 33 months. Jobs growth in the
developed world also moderated to the joint-lowest since late-2016
and future expectations deteriorated to a new low.
Among the largest advanced economies, the Eurozone saw the
strongest PMI for the second successive month, with growth
accelerating to the highest since last November as an improved
service sector expansion helped offset an ongoing manufacturing
downturn. Growth also edged higher in the US but eased markedly
over the second quarter, as the slowdown broadened out from
manufacturing to services.
Growth also remained stuck in a low gear in Japan thanks mainly
to falling manufacturing output, running close to the weakest seen
over the past three years.
However, the worst performance among the biggest developed
countries was the UK, where the PMI surveys indicated the first
contraction of business activity since the 2016 EU referendum, as
Brexit-related uncertainty exacerbated the wider economic
slowdown.
Emerging market PMI at three-year low
Emerging market growth was meanwhile the weakest for three years
amid a broad-based deterioration in performance. Manufacturing
stagnated while the service sector grew at the slowest pace for
just over one-and-a-half years. Emerging market employment dropped
for a second successive month and future expectations sank to the
lowest since January 2016.
Looking at the four largest developing economies, both Brazil
and Russia recorded falling output in June, the former reporting
the second successive monthly decline while the latter saw the
first downturn since the start of 2016.
Both China and India continued to expand, but rates of growth
slowed to eight- and 13-month lows respectively.
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.
