Bottoming out global manufacturing continues

Global manufacturing PMI drops back a bit in April

Over the past week, April manufacturing PMIs were published for a wide range of developed markets (DMs) and emerging markets (EMs). The global manufacturing PMI stayed (just) above the neutral 50 mark separating expansion from contraction for the third consecutive month. Still, for the first time in four months the global index dropped back a bit (to 50.3), after having risen from a ‘cyclical trough’ of around 48.5 in the summer of 2023 to a 20-month high of 50.6 in March 2024. All of this fits within our expectation of a gradual bottoming out in global industry, based on our growth views for the key economies: a resilient but slowing US, and the eurozone and China bottoming out (see our April Global Monthly for more background).

EMs continue to outperform DMs

The aggregate EM index remained in expansion territory in April, stabilising at 52.0, with the indices for all BRICS remaining above the neutral mark (see our earlier comment on China’s PMIs here). Meanwhile, the aggregate DM index dropped further into contraction territory, to 48.6 (March: 49.3). Amongst DMs, the manufacturing PMI remains relatively weak for the eurozone, falling back to a four-month low of 45.7 (see our previous comment on the flash PMIs here and on eurozone growth here). Germany’s manufacturing PMI clearly remains below the eurozone average, despite an improvement to 42.5 in April (March: 41.9). Meanwhile, the manufacturing PMI for the Netherlands rose back to expansion territory (51.3, versus 49.7 in March), for the first time since August 2022 (see here and here). It should be noted that the weakness in Europe is currently exaggerated by the shortening in delivery times, as the disruption eases from the Red Sea trade diversions.

Supply side still stronger than demand side

As we analysed in our April Global Monthly, the supply side in global industry continues to be stronger than the demand side. This is also indicated by our global supply bottlenecks index, which fell deeper into excess supply territory in April. All of this is helping to contain industrial goods’ inflation and mitigate the impact of recent disturbances in global shipping routes following the escalation in the Middle East, although China’s role in global excess supply is contributing to new trade spats that could lead to stronger inflationary pressures in the future. The various components of the April global manufacturing PMI confirm that global excess supply continues, with the subcomponent for output (supply side) remaining stronger than the demand subcomponents (domestic and export orders). That said, the global subcomponent for export orders rose back to expansion territory (April: 50.5) for the first time since February 2022, with EMs clearly continuing to outperform DMs in this respect.

Input price component rises alongside higher commodity prices

The dominance of global supply over global demand is also visible in the global manufacturing PMI’s components for input and output prices, which are still well below their peaks seen in the course of 2021 and 2022. That said, the global input price component rose to a 14-month high of 54.0 in April (March: 52.4). This seems related to the rise of the global commodity index over the past few months. Meanwhile the global output price component is quite stable at around 51.5, suggesting producers are hesitant to pass on higher input costs. Meanwhile, following the surge in late 2023/early 2024 on the back of disturbances in key shipping routes (Suez Canal, Panama Canal), global container tariffs have fallen sharply in recent months. Nevertheless, we note that container tariffs on Asia-Europe routes have risen somewhat again in recent weeks, possibly a reflection of the recent escalation of tensions between Israel and Iran. Meanwhile, recent disturbances in global shipping lanes have not led to a permanent sharp drop in the global component for delivery times (which would have indicated longer delivery times) , as described in our April Global Monthly.