Global industry shaking off disturbances
Global manufacturing PMI rises to highest level in almost two years. EM outperformance continues, but picture improves for DMs as well. Our global supply bottlenecks index still in excess supply territory.
Global manufacturing PMI rises to highest level in almost two years
After having temporarily fallen back towards the neutral 50 mark separating expansion from contraction in April, the global manufacturing PMI picked up again in May, by 0.6 point to 50.9 –the strongest reading since July 2022. The rise from a cyclical trough of 48.5-49.0 in the summer of 2023 to the current levels is in line with our view of an ongoing recovery in global industry, despite the flaring up of disturbances stemming from geopolitics (see our for an earlier analysis of this topic). This view is based on our growth views for the key economies, with the eurozone and China picking up and the US gradually cooling. That said, we still deem a very sharp rebound unlikely for the moment– as rates remain restrictive, and the stepping up of trade tariffs is adding additional risks.
EM outperformance continues, but picture improves for DMs as well
The monthly improvement in the global manufacturing PMI was this time driven by developed markets (DMs), with the aggregate DM index rising by 1.4 point to 50.0. This was the first time since September 2022 that the DM index was back at the neutral mark. The improvement amongst DMs was broad-based, with the indices for the US (S&P Global), Japan and the UK rising back to above 50 and the index for the eurozone improving by 1.6 points to 47.3 – although remaining in contraction territory. Remarkably, the ISM index for the US dropped further into contraction territory (48.7), bringing back the clear divergence between the two industrial indicators for the US (see our earlier comment on this divergence ). Within the eurozone, Germany’s manufacturing PMI rose by almost 3 points to 45.4, although remaining well in contraction territory – while the index for the Netherlands rose to a 21-month high of 52.5 (see our for more on European competitiveness/productivity).
Meanwhile, the EM ‘outperformance’ in global manufacturing seems to have continued, with the aggregate EM index being stable at 52.0. This was partly thanks to a further pick-up in Caixin’s manufacturing PMI for China, which is included in the EM aggregate. However, in China the divergence popped up again too, with the official manufacturing PMI dropping back to below the neutral mark (49.5) for the first time in three months – see an earlier related comment . Meanwhile, the picture for the other EMs remains solid – with manufacturing PMIs for the other BRICs and the rest of EM Asia generally well above the neutral mark.
Our global supply bottlenecks index still in excess supply territory
Looking at the various components of the global manufacturing PMI, the supply side remains stronger than the demand side – but demand conditions also show a further improvement. On the supply side, the output component rose by more than a full point to 52.6, the highest reading since December 2021 – with the DM output component rising by more than two full points, to 51.4. On the demand side, the global (domestic) new orders component rose to a 26-month high of 51.0. The global export component remained in expansion territory (50.4), with a clear improvement seen for DMs (to 50.0) – whereas the EM component fell significantly but is still higher, at 50.9. All in all, our global supply bottlenecks index remained in ‘excess supply territory’, although the index has moved back a bit towards the neutral level – reflecting the improvement in global demand conditions and the renewed rise in global container tariffs on the back of the Middle East escalation.
Meanwhile, the components for input and output prices – bellwethers for cost-push factors in global industrial goods’ prices – continued to edge higher, although remaining well below their peaks seen in the course of 2021 and 2022. That is particularly true for the global input price component, which rose to a fourteen-month high of 54.8. By contrast, the global output price component edged up only marginally (to 51.8), suggesting producers may still be a bit hesitant to pass on higher input costs.