Global manufacturing - Output firms, demand weakens further

Global manufacturing PMI stable at 49.6 for three consecutive months

Over the past week, manufacturing PMIs for a wide range of developed markets (DMs) and emerging markets (EMs) have been published for the month of May. For the third consecutive month, the global manufacturing PMI was stable at 49.6, just below the neutral 50 mark separating expansion from contraction. Underlying this stable outcome, there was an improving picture for EMs and a worsening one for DMs. The aggregate EM index rose by almost a full point to 51.4 (April: 50.5), led by an uptick in Caixin’s manufacturing PMI for China (to 50.9, from 49.5 in April). That said, China’s official manufacturing PMI for May published by NBS fell even deeper into contraction mode (48.8), pointing to divergence between the two China surveys (see our recent take on China’s May PMIs here).

Elsewhere in EMs, the outcomes were also quite divergent – with relatively strong outcomes for India, Russia and Turkey, and still weak (below 50) readings for Taiwan, South Korea and Brazil. Amongst DMs, the manufacturing PMI dropped further in May for the US, the eurozone including the Netherlands, and the UK, while it showed some improvement for Japan. Going forward, although we see some bottoming out in global manufacturing, a strong rebound in the near-term looks unlikely - partly reflecting ongoing tight monetary policies and weak demand in DMs.

Global output component firms, while export sub-index drops to 5-month low

Looking at the various subcomponents of the global manufacturing PMI, the weakness in global industry is still dominated by the demand side. On the supply side, the global output component rose to an 11-month high of 51.5 led by EMs/China (with also here divergence between Caixin and NBS), with the aggregate index for DMs falling back to below the neutral mark (49.0). The future output component fell compared to April, but at 61.1 remained at a relatively high level. On the demand side, the ‘good news’ was that the global new orders index stabilised at 49.4.

However, the ‘not so good news’ was that the export sub-index fell deeper into contraction territory, reaching a five-month low of 47.3 and driven by DMs, suggesting the weakness in global trade is not over yet (also see the global article in our May Global Monthly for more on this). The fact that weakness in global industry is driven by the demand side is also reflected in our global supply bottlenecks index – with for instance delivery times at cyclical highs (suggesting short delivery times that point to cyclical weakness and the dissipation of global supply bottlenecks), and global container tariffs almost back at pre-pandemic levels. It is also illustrated by a further easing of global cost price pressures, with both the components for input and output prices dropping below the neutral 50 mark for the first time since June 2020.