This month’s Ti’s Dashboard of the Month will look at the PMI (Purchasing Managers’ Index) of two emerging markets, Brazil and China, two countries showing sharp recoveries. PMI is a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy and can function as an indicator for the health of the manufacturing sector.
Brazil’s PMI has risen sharply in November to 64.0 since it plunged to its 2020-low in April (36.0) even though it marks a slight decline since its 2020 peak-to-date in October of 66.7, the highest of emerging (and developed!) markets Ti is recording in 2020. Exports rose at its quickest rate in survey history and its manufacturing sector performed strongly as well, which can be traced back to improved business conditions and continued hiring efforts of companies as they have also been purchasing additional inputs aiming to increase safety stocks. Despite supply chain disruptions resulting in lower inventory, the sector has been improving sharply. Efforts to rebuild inventory are reportedly thwarted by delivery delays. The upturn in costs are mainly a consequences of raw material shortages, attributable to COVID-19 restrictions, real depreciation, and a strong input demand. The upturn in total sales has been boosted by record-level international orders, as Brazilian goods have gained competitiveness due to the depreciation of Brazilian real against the US dollar.
China has recorded the sharpest improvement in conditions since November 2011, showing a PMI of 54.9 in November 2020. As the origin point of the pandemic, China had experienced a substantial blow to its PMI very early on, plummeting to a low of 27.5 in February ahead of all other economies. Though it bounced back in March already (50.1), it has been November that has marked its 2020 peak-to-date of the year, indicating a sustained and strong recovery since the COVID-19 outbreak. November has marked an accelerated rise in production, with those production requirements and outputs also resulting in companies expanding their workforce at a rate strongest since mid-2011. Manufacturing has increased due to a greater demand and a rise in new order volumes. According to some panel members, a substantial increase in purchasing activity and enhanced inventories of post-production items are a result of stock building efforts of improved sales and stronger market conditions. However, the sector has also experienced longer delays in receiving purchased inputs as suppliers reported stock shortages. Input prices have also been rising, as raw material costs, similar to Brazil, continued to increase, metals being particularly affected, resulting in companies raising their selling prices at a quicker rate.
While issues and shortages around raw materials and inventory stocks remain, according to the PMI measure, countries have largely been able to bounce back from the initial and worst phase of the pandemic thanks to improved demand driving purchasing activity and exports, even though they partly stem from real depreciation as in Brazil’s case.
Source: Transport Intelligence, December 3, 2020
Author: Dila Cebeci
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)