Global manufacturing PMIs - Supply bounces back, demand weakens

Global Macro: Global manufacturing PMI drops to 2-year low

Over the pastfew days, manufacturing PMIs for a wide range of developed markets (DMs) and emerging markets (EMs) for June have been published. The global manufacturing PMI dropped marginally to 52.2 (May: 52.3), the weakest reading since August 2020. This deterioration was driven by DMs, with their aggregate index falling by 2.5 points to 52.5 (although remaining above the neutral 50 mark separating expansion from contraction). Specifically, steep falls were visible in the US and in the eurozone. Meanwhile, the aggregate index for EMs rose by more than two points to 51.7, and was back above the neutral 50 mark for the first time since February. This was mainly driven by China, with a rebound in economic activity after the gradual reopening from lockdowns in March and April (also see our recent comments here).

Supply side improving, demand side weakening

Looking at the various subcomponents, the picture emerges of an improving supply side (driven by EMs/China) coupled with a weakening demand side (driven by DMs). On the supply side, the global manufacturing PMI output index rose by almost three points to 52.5 in June, which was largely driven by China’s post-lockdown rebound. The global sub-index for delivery times improved by 3.5 points to 42.3, the strongest reading since November 2020 (although still at relatively low levels from an historic perspective). By contrast, on the demand side, the global domestic orders component dropped to a two-year low of 50.1. The aggregate sub-index for DMs fell to 48.5, coming below the neutral mark for the the first time since June 2020. The global export orders component rose by 1.6 point to 49.5 in June, entirely driven by EMs. Meanwhile, the global manufacturing PMI’s subindices for input and output prices (a proxy for global cost push price pressures) eased further, although remaining at relatively high levels. The aggregated component for input prices dropped to a four-month low of 68.6 (May: 70.3), while the component for output prices fell to a six-month low of 60.5 (May: 61.5). This easing is partly a reflection of some cooling in global commodity markets, despite remaining risks in energy markets specifically – namely, that of a further Russian gas cut-off to Europe (see our June Global Monthly here).

Dramatic improvement of our global supply bottlenecks index

The above developments on both the supply and the demand side are contributing to a significant easing of imbalances in the global supply of and demand for goods. This is also clearly illustrated by our global supply bottlenecks index. This index dropped sharply in June, particularly on the jump in the ratio of the global manufacturing PMI output component for EMs versus the orders components for DMs. A further drop in global shipping tariffs, as well as a drop in the global manufacturing PMI backlogs component, also contributed to the easing in our index. We should add that our index is a global macro indicator capturing supply and demand imbalances for goods (to a large extent based on global manufacturing PMIs) and related global logistics, but does not measure shocks and (price) volatility in specific commodity markets, nor domestic supply issues such as scarcity on labour markets or congestion in specific ports or domestic transport chains. Although, as noted earlier, there has also been a significant improvement in a number of these other indicators too, especially non-energy commodity prices.