Industrial price pressures keep fading, as global manufacturing slump deepens

Global manufacturing PMI drops further in December, albeit marginally

The manufacturing PMIs for December published end 2022 and early 2023 indicate that global industry remains in contraction mode. Still, the global manufacturing PMI only fell by an additional 0.2 point to 48.6 (November: 48.8) after sharper drops in previous months. The weakness is still driven by developed markets (DMs), with the aggregate index for DMs falling by 0.5 point to 47.3 – the weakest reading since June 2020. Amongst DMs, December readings were particularly weak for the US (46.2) and the UK (45.3); the index for the eurozone edged up a bit, to 47.8 (November: 47.1), although remaining clearly below the neutral 50 mark separating expansion from contraction. The aggregate index for emerging markets (EMs) was more or less stable in December at 49.8 (November: 49.7), despite the start of China’s messy exit from Zero-Covid last month. We should add that this partly reflects the fact that Caixin’s manufacturing PMI (which dropped only 0.4 point in December, to 49.0) is included in the EM aggregate. Meanwhile, China’s official PMI published by NBS was impacted more strongly by pandemic and other headwinds, dropping by a full point to a three-year low of 47.0.

Industrial price pressures continue to fade

Looking at the various components of the global manufacturing PMI, the weakness is still broad-based, but concentrated on the demand side. The global PMI orders subindex fell to 46.3 (November: 46.7), while the export orders subindex dropped to 46.1 (November: 46.2) in line with our expectation of a significant slowdown in global trade. Meanwhile, the global output subcomponent edged up to 48.5 (November: 47.8), driven by EMs – with again the remark that the picture would have been weaker if China’s official PMI rather than Caixin’s equivalent would have been taken up in the aggregate EM index.

…with supply-demand imbalances correcting further

All of this confirms that for now global imbalances in the supply and demand for goods have been correcting further as global demand cools, with our global supply bottlenecks index dropping further into 'easing territory'. More evidence on this front comes from the global PMI sub-index for delivery times, which rose to 47.8 (November: 47.4), the strongest reading since January 2020. This goes hand in hand with the further fading of industrial price pressures, with the subcomponents for input and output prices dropping to two-year lows helped by a downward trend in global commodity prices over the past half year or so. This also suggests that even if renewed supply bottlenecks would arise from China’s bumpy Zero-Covid exit, the global repercussions thereof will likely not be comparable to what happened during earlier phases of the pandemic. That said, the expected bounce in China’s domestic demand later this year following the Zero-Covid exit may well add to demand pull pressures, potentially slowing the global disinflation process.