Global manufacturing PMI falls deeper in contraction territory

Global manufacturing PMI falls to lowest level since June 2020

The manufacturing PMIs for October published last week point to a deepening contraction in global industry. The global manufacturing PMI dropped for the fifth consecutive month, to 49.4. Hence, this index fell deeper into contraction mode compared to September (49.8), when it moved below the 50 neutral mark separating expansion from contraction for the first time since the initial Covid-19 shock in early 2020. This weakness was mainly driven by developed markets (DMs), with the aggregate index for DMs dropping to 48.8 (September: 50.1). Amongst DMs, October readings were the weakest for the eurozone (46.4 versus 48.4 in September) and the UK (46,2 versus also 48.4 in September), both relatively strongly impacted by the ongoing energy crisis. Meanwhile, the aggregate index for EMs edged up a bit, to 49.8 (September: 49.4), although remaining below the neutral mark. This improvement was driven by China, as Caixin’s manufacturing PMI – included in the aggregate EM index – rose by almost a full point in October (whereas, by contrast, the official manufacturing PMI published by NBS weakened and fell back below the neutral mark).

Our global supply bottlenecks index drops to two-year low

Looking at the various components of the global manufacturing PMI, the further deterioration is driven by the demand side, and particularly by DM demand. The global subcomponent for new orders dropped to 46.9 in October (September: 47.7), with the DM sub-component falling by more than two points to 44.3 (September 46.5). Although the global PMI exports sub-index edged up a bit, to 46.2 (September: 45.9) it remains clearly below the neutral mark and indicates a significant cooling in global trade (also see our report here). The rapid cooling of global demand is leading to a further unwinding of global supply bottlenecks and supply-demand imbalances. This is also shown by our global supply bottlenecks index, which fell to a two-year low in October. This is to a large extent driven by the demand side, but supply bottlenecks indicators captured in our index also point to a further easing.The benchmark for global container tariffs has fallen by 70% compared to its peak reached a year ago, although these tariffs are still around two times higher than pre-pandemic levels.The components of our index that measures delivery times also continue to normalise.All in all, our index shows that imbalances in global supply of and demand for goods have eased to a large extent, thereby limiting the rise in global cost push price factors.