Global manufacturing PMI edges down, container tariffs up on Red Sea turmoil

Global manufacturing PMI drops further below neutral mark in December

Earlier this month,the December 2023 manufacturing PMIs for various developed markets (DMs) and emerging markets (EMs) were published. After having risen by 0.5 point (to 49.3) in November, the global manufacturing PMI dropped back to 49.0, falling a bit further below the neutral 50 mark separating expansion from contraction. This weakening was driven by DMs: the aggregate index for DMs fell to 47.0 (November: 47.7), while the EM aggregate index was stable at 50.9. Amongst DMs, the December manufacturing PMI was still at relatively low levels for the eurozone (44.4), including for countries such as France (42.1), Germany (43.3) and the Netherlands (44.8). The manufacturing PMI for the UK was also still at a relatively low level in December (46.2), while the indices for the US and Japan have come down over the past few months. Amongst EMs, China’s manufacturing PMI published by Caixin – which is taken up in the EM aggregate – was more or less stable (December: 50.8), although its ‘official’ equivalent from NBS dropped further below the neutral 50 mark (to 49.0).

In big picture terms, the global manufacturing PMI has hovered a little below 50 for much of the past year, with the trough of 48.6 reached last July. Looking ahead, we expect this bottoming out in global manufacturing to continue in the course of 2024, but we deem a sharp rebound unlikely given our growth views for the key economies (US, eurozone, China) – also see our Global Outlook for 2024, Back to not so normal.

Demand components still weaker than supply components

The supply side and the demand side contributed more or less equally to the modest drop in the global manufacturing PMI in December, although the demand side subindices are still at weaker levels. On the supply side, the output component fell to 49.5 (November: 49.9), with a divergence between DMs (aggregate index falling from 48.0 to 46.8) and EMs (aggregate index rising from 51.8 to 52.2). On the demand side, the global new orders component dropped to 48.6 (November: 48.9), while the exports sub-index was more or less stable but at a still relatively weak level of 48.0 (November: 48.1). All in all, supply conditions currently still look a bit stronger than demand conditions. This is also reflected in our global supply bottlenecks index, which remains in ‘supply abundance’ territory.

Despite rise of container tariffs, cost price components still well below 2021/22 peaks

Container freight tariffs have risen sharply again in recent weeks, following developments in the Red Sea. Houthi rebel attacks have caused global shipping companies to avoid the Suez Canal, taking the 10 days longer route via the Cape of Good Hope instead. This comes on top of constraints in the Panama Canal due to low water levels. All in all, the composite benchmark for container freight spot tariffs has more than doubled since late November. However, these tariffs directly affect only the part of container freight that is not priced under longer-term contracts. In addition, shipping companies reportedly charge ad hoc surcharges, due to the current risks at hand, adding to transport costs. With that said, the spot container rates are still well below the levels seen during the pandemic peak in 2021, when disturbances in global supply chains (in both production and transport) were more widespread and global demand conditions were much stronger. The impact of higher container tariffs is also not really visible (yet) in the global manufacturing PMI subcomponents for input and output prices. Although these two bellwethers for industrial goods’ price pressures have ticked up on balance since June 2023, they also remain clearly below their 2021 peak levels. Indeed, as we discussed before, shipping makes up a relatively small part of the total cost of most goods. In addition, the delivery times subcomponent of the global manufacturing PMI has not really changed yet, following the developments in the Red Sea.