Momentum in global manufacturing weakens further

Global manufacturing PMI drops to six-month low

According to the June PMIs published over the past days, global manufacturing has lost further momentum. After having been stable at 49.6 in March-May, the global manufacturing PMI for June fell further below the 50 neutral mark separating expansion from contraction, to 48.8. The weakness was concentrated in developed markets (DMs), with the aggregate index for DMs falling by more than a full point to a three-year low of 46.3 (May: 47.6). The aggregate index for emerging markets (EMs) also dropped in June, to 51.1 (May: 51.4), but stayed well above the neutral mark. Amongst DMs, the weakness was broad-based, with the manufacturing PMI dropping to a range of 46-46.5 for the US and the UK and to 43.4 for the eurozone. Japan’s manufacturing PMI also came down, but stayed closer to the neutral 50 mark (49.8). By contrast, the manufacturing PMI for the Netherlands rose to 44.6 in June (May: 43.5), but remained clearly in contraction territory. Amongst EMs, Caixin’s manufacturing PMI for China (included in the EM aggregate) dropped to 50.5 in June, although staying above the neutral mark and coming in better than consensus expectations (50.0).

Sharp easing of cost-price push pressures in global industry

Looking at the various subcomponents of the global manufacturing PMI, there’s weakness at both the supply and demand side. On the supply side, after a pick-up in recent months, the global output index fell back to below the neutral mark, coming in at 49.2 (May: 51.4), with drops in production in both DMs and EMs. The future output component also came down, to 59.6 (May: 61.0). On the demand side, the global new (domestic) orders index fell further to 48.1 (May: 49.3). The export sub-index fell to a six-month low of 47.1 (May: 47.3), suggesting that the weakness in global trade is not over yet. Meanwhile, the subindices for input and output prices confirm that cost-price pressures in global industry have eased sharply, with both subindices falling further below the neutral 50 mark in June (for more on this, see our June Global Monthly, When will inflation get back at 2%?). All of this is also in line with our global supply bottlenecks index, which remains clearly in ‘supply abundance’ territory, with for instance global container tariffs having falling back to below pre-pandemic averages. All in all, the June manufacturing PMIs suggest that the contraction in global trade and industry has intensified moving into Q3, and that the inflation rate of non-energy industrial goods will continue to drop lower in the second half of the year.