Global manufacturing picks up before tariffs may hit

Global manufacturing PMI picks up in January, led by developed markets

After having dropped back to below the neutral 50 mark separating expansion from contraction in December (49.6), the global manufacturing PMI rose by 0.5 points in January, to a seven-month high of 50.1. This improvement was driven by developed markets (DMs). Still, global manufacturing as yet shows a picture of ‘bottoming out’ at best, and not a convincing recovery – in line with our views. Looking forward, our macro outlook for 2025 assumes headwinds from a US trade tariff shock to drive a slowdown in global GDP and (goods) trade in the course of 2025 and in 2026, which is likely to form a drag on global industry as well. Still, frontloading ahead of these (assumed) tariffs may support global trade to some extent in the first half of this year, and this could create a short-term tailwind for global manufacturing as well (see our Global Outlook for 2025, The year of the tariff).

Improvements in DMs led by the US, eurozone shows improvement but still lags behind

The aggregate DM index rose by more than a full point to 49.3, from 48.2 in December, although remaining in contraction territory. Amidst DMs, the largest improvement came from the US, with both the S&P Global PMI and the ISM index rising back into expansion territory. In Europe, the manufacturing PMIs improved for the eurozone and the UK, but remained in contraction territory. The index for the eurozone rose to an eight-month high of 46.6, with the indices for Germany (up to 45.0 from 42.5) and France (up to 45.0, from 41.9) showing the highest readings since May 2024 and June 2024, respectively. The manufacturing PMI for the Netherlands fell back slightly to 48.4 (December: 48.6), remaining in contraction territory but staying well above the eurozone average (see our comment here). Meanwhile, the aggregate index for emerging markets (EMs) was more or less stable in January at 50.8 (December: 50.9), staying in expansion territory. A drop in Caixin’s PMI for China (see our take on China’s January PMIs here) was offset by improvements in the other BRICs and Indonesia.

Improvements both at the supply and the demand side

Looking more closely at the global manufacturing PMI’s subindices, the improvements were broad based, with the components for (future) output, domestic orders and export orders all rising compared to December. Following a remarkable drop in December (to 49.2), the global output component rose back into expansion territory (to 50.6), while the future output component rose by 2.5 points to an eight-month high of 61.7. On the demand side, the global component for new orders rose from 49.5 in December to 50.8, also back above the neutral mark and at an eight-month high. The global export orders sub-index rose by 1.2 points to 49.4, although remaining in contraction territory. Our global supply bottlenecks index, that includes an excess supply/demand metric as a key component, remains in “excess supply” territory, although it has moved towards the neutral mark over the past year.

Input and output price components stay well below ‘pandemic peaks’

The ongoing global excess supply conditions help keep a lid on cost push price pressures stemming from global manufacturing. That said, the global PMI component for input prices has risen a bit in recent months, reaching a five-month high of 54.5 in January (December: 54.4). The global PMI component for output prices has been quite flat over the past year, suggesting that producers are for now hesitant to pass on higher input costs to their offtakers (likely reflecting the excess supply conditions, and subdued goods demand). In any case, both the components for input and output prices remain well below peaks seen during the pandemic episode of widespread supply bottlenecks in 2021-2022, and also below the 2024 peak seen in June. Meanwhile, spot container tariffs are coming down again in recent weeks amidst rising capacity. Shanghai-Rotterdam tariffs are dropping faster than Shanghai-Los Angeles and Shanghai-New York tariffs; these differences in relative price dynamics could be an indication of some trade frontloading into the US.