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The global manufacturing PMI's export orders index can be used
to accurately model worldwide trade flows, and indicated trade
slumping at a quarterly rate approaching 15% in April
A broad-based decline in exports was seen with all countries
surveyed reporting lower export volumes
A renewed slide in demand for exports from China highlights the
risk of a second dip in global manufacturing after production lines
are restarted
Global manufacturing export orders collapsed at an unprecedented
rate in April, according to the latest Purchasing Managers Index
data from IHS Markit, as worldwide demand slumped amid the
coronavirus disease 2019 (COVID-19) pandemic.
All countries surveyed reported falling export volumes. China,
which has reopened production lines ahead of other countries,
nevertheless saw output constrained by a renewed slide in export
orders, which highlights the risk of persistent weak global demand
limiting global manufacturing recoveries even after lockdowns are
eased.
Record fall in global trade
The JPMorgan Global Manufacturing PMITM, compiled by IHS Markit
from its business surveys in over 30 countries, saw new export
orders decline in April to an extent not previously recorded since
survey data were first available over 20 years ago.
The global PMI's export index is a GDP-weighted measure which
has a powerful track record of accurately anticipating changes in
world trade flows. The index fell, for example, well before other
trade gauges at the start of the global financial crisis (GFC) and
was early in indicating a subsequent revival in trade from the
GFC.
More recently, the index showed a surge in trade up to early
2018 as global economic growth accelerated, after which the
escalating US-China trade war can be seen to have dampened global
exports to the extent that exports began falling in September 2018.
Note that any index reading below 50 indicates a month-on-month
fall in trade volumes. Exports have since remained in decline, but
the rate of reduction has accelerated markedly in recent months,
the index sliding to a new all-time low of just 27.3 in April, down
from 49.5 in January. By comparison, the lowest reading seen during
the GFC was 30.6.
PMI-based trade model
To help put the PMI index numbers into context, we compare the
survey gauge against the CPB Netherlands Bureau for Economic Policy
Analysis World
Trade Monitor, which aggregates the latest official trade
statistics to provide what is considered a reliable and timely
guide to global trade flows.
Month-to-month volatility in the official trade data means the
best comparison with the PMI is made looking at the CPB data for
the latest three-month period compared to the prior three-month
period which, as our chart shows, presents an historical data
series which correlates well with the PMI.
The PMI in fact shows its highest correlation (86%) when acting
with a lead of one month against this CPB gauge. As the PMI data
are also available over two months before the publication of each
month's CPB data, the PMI therefore provides highly accurate
indications of changing trade at least three months before the
official data.
In terms of gauging the initial impact of the coronavirus
pandemic, the comparisons suggest that the latest PMI data are
indicative of global trade falling at a quarterly rate of just over
13%, or around 50% on an annualised basis.
This estimate is derived from a regression model yielding an
adjusted r-square of 0.75 and SE of 1.0 using the global PMI's
export index as the sole explanatory variable. (We use the natural
log of the PMI index to allow for potential 'non-linearity during
times of extreme growth or decline).
Universal downturn
The latest manufacturing PMI survey data were collected between
7th and 24th April, a time when China continued to ease some of the
restrictions on social mobility and company closures after
lockdowns had been widely imposed in February. However, many other
countries saw lockdowns implemented in March persist into April,
with very few countries easing any restrictions.
For a second successive month, all countries surveyed reported
falling exports, a universal collapse that had not been recorded by
the surveys prior to March. Moreover, all saw rates of decline
accelerate in April, highlighting the broad-based intensification
of the collapse in global trade.
The steepest declines were seen in Indonesia and India, the
former even seeing its export orders index slip into single
digits.
The mildest export downturn was seen in Australia, in part
reflecting some easing in the export decline to China. China was
alone in the world in reporting any growth of manufacturing output
in April, albeit with production levels still vastly diminished
compared to before the virus lockdown.
Steeper drop in China's exports bodes ill for global
recoveries
China was notable in that, despite seeing only the
second-smallest drop in exports of all economies surveyed, the rate
of contraction accelerated after a short-lived easing in March. The
latest decline was the steepest since the global financial
crisis.
This renewed steepening in the rate of loss of China's exports
highlights the extent to which global demand for goods has slumped
since the onset of the coronavirus outbreak, and is a timely
reminder that, while global manufacturing may see an initial
rebound after lockdowns are eased and production lines are
restarted, albeit even gradually, a lack of demand will limit these
recoveries and could well cause a second-dip in production.
For more information contact economics@ihsmarkit.com.
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.
