Is global manufacturing bottoming out?

Global manufacturing PMI picks up for the first time since February

Over the past few weeks, August manufacturing PMIs for a range of developed markets (DMs) and emerging markets (EMs) have been published. For the first time since February, the global manufacturing PMI picked up on a monthly basis, rising to 49.0 (July: 48.6). This pick-up was driven by EMs – particularly China and India – with the aggregate EM index rising to 51.4 (July: 50.2) and China’s Caixin PMI up to 51.0 (July: 49.2). One note of caution should be made here. The picture would have been worse if China’s official manufacturing PMI would have been included in the EM index, rather than Caixin’s PMI. China’s official manufacturing PMI also picked up in August, but at 49.7 (July: 49.3) remained below the neutral 50 mark separating expansion from contraction (also see our recent comment on China’s PMIs here). Meanwhile for DMs, after a pick-up in July, the aggregate index deteriorated again, falling further below the neutral mark, to 46.8 (July: 47.1). Amongst DMs, August manufacturing PMIs were particularly weak for the UK (falling to 43.0, from 45.3 in July) and the eurozone (although rising to 43.5, from 42.7 in July). The manufacturing PMI for the Netherlands fell to a post-pandemic low of 42.2 (July: 46.0).

Global export sub-index remains clearly in ‘contraction territory’

The various subcomponents of the global manufacturing PMI signal a slight improvement on both the supply and the demand side, driven by EMs. On the supply side, the output subindex of the global manufacturing PMI rose by 0.5 points to 49.4 (July: 48.9), although remaining below the neutral mark. The aggregate output index for EMs rose to 52.2 (50.6) driven by a pick-up in output in China and India, whereas its equivalent for DMs dropped back to 46.7 (July: 47.3). On the demand side, the global new orders index also rose by 0.5 points, staying in ‘contraction territory’ as well (at 48.1, up from 47.6 in July). The EM aggregate index for new orders rose to 51.7 (also driven by China and India), whereas the DM aggregate index fell back to 44.7 (July: 45.4). Meanwhile, the global subindex for exports picked up to 47.0 (July: 46.4), but remained well below the neutral mark. This suggests that weakness in global trade is not over yet.

Sharp acceleration in global manufacturing not likely at the moment

Although we do not forecast PMIs, we expect any rebound in global manufacturing to be modest in the coming months, given that we expect a significant slowdown in the US, and ongoing economic sluggishness in the eurozone (see our latest Global Monthly). Still, the stimulus to investment via the US’s Inflation Reduction Act and Europe’s recovery fund may help to offset (to some extent) the drag from weaker consumption. A bottoming out of domestic demand in China, following ongoing piecemeal monetary easing and the stepping up of targeted support, particularly for real estate, should also help.

Subindices for input and output prices have risen somewhat in recent months

Meanwhile, the subindices for input and output prices rose for the second month in a row in August, coming back to levels just above the neutral 50 mark. This is likely be the result of of increasing wage pressures and a recent pick-up in commodity prices. Still, the current levels of these subindices suggest that, at least in global manufacturing, these kinds of cost-push price factors are currently much more benign compared to 2021 and 2022. Back then, the output and input price components were at peak levels due to spikes in energy and food prices and supply bottlenecks in global supply chains. Regarding the latter factor, our global supply bottlenecks index has stabilised in recent months, but remains clearly in ‘supply abundance’ territory, suggesting a deflationary rather than an inflationary impact on industrial goods prices from that perspective.