Manufacturing Purchasing Managers’ Index.
More and more macro-economic indicators are confirming fears that the global economy is slowing and heading for a recession. The Manufacturing PMI data for the three of the world’s largest economies points toward the lowest levels of production since the start of the pandemic.
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In Germany, PMI now sits at 52.0. This is the lowest level since July 2020, a time where European economies were cautiously opening up. Germany’s PMI has fallen in four of the previous five months, and the country’s manufacturing PMI fell by 2.8 points in June. Another fall of this scale will put the county in negative growth territory and provide confirmation that Germany’s industrial output is falling. With Russia’s decision to run the Nordstream 1 pipeline at just one-fifth of its capacity means German businesses now face a large increase in costs and potential gas rations that will further stifle growth.
In June, China’s PMI rebounded back into growth territory for the first time since February, growing 3.6 points in May to 51.7. The country’s zero covid policy has hampered industrial output and prevented the swift transportation of key intermediary goods. While 28m people are still living under lockdown in the country, other areas are prospering. In Chongqing, a major manufacturing hub twice the size of Switzerland, normal daily life resumes with factory churning and streets busy with tourists. An easing of Covid restrictions in Shanghai in June has also benefitted surrounding economies as the resulting increase in car part availability facilitated a 14% month-on-month increase in Japanese Car production. However, with record low consumer confidence, a growing property crisis and falling demand from key export markets, China’s economy faces further challenges in H2 2022.
The US’s PMI sits at 52.7, slightly higher than both Germany and China but a 22 month low following 4.3 point fall in June. Another fall at that scale will put US industrial output in negative territory. This week came with confirmation that the US economy has shrunk for the second consecutive quarter and thus putting the country in an unofficial recession. While the economy is not showing signs of a severe recession with mass layoffs and bankruptcy, we can still expect the country’s demand for logistics to weaken in H2 2022.
In conclusion, manufacturing PMIs in the world’s largest economies are the lowest they have been since the start of the pandemic, suggesting that industries in all three economies are demanding fewer intermediary goods as they expect to produce less in the coming months. This comes as consumers around the world are struggling with growing inflation and businesses face growing costs of operations and borrowing.