Supply bottlenecks drive further slowdown in manufacturing

Global Macro: Global manufacturing PMI for April further down

The global manufacturing PMI continued its decline in April. After falling from 53.7 in February to 52.9 in March, the index dropped to 52.2 in April, the lowest level since August 2020. This was mainly driven by emerging markets: The aggregate index for emerging economies dropped further below the 50 mark separating expansion from contraction, to a two-year low of 48.1 (March: 49.2). Caixin’s manufacturing PMI for China fell to a post Covid-19-shock low of 46.0. Indices for emerging economies such as Russia, Turkey and Mexico stayed well below 50 as well, although Russia’s index surprisingly bounced back quite sharply in April. Meanwhile, the picture for developed economies was more robust: the aggregate index stayed at a relatively high level of 56.3 in April (March: 56.5), with the indices for the US (Markit) and the UK even picking up. We should add that still lengthy delivery times are to a certain extent flattering these numbers.

This is mainly driven by the supply side...

Looking at the various subcomponents, the cooling in global manufacturing is driven by the supply side, reflecting the intensification of disturbances stemming from the war in Ukraine that started in February and the broadening of lockdowns in China in March/April. The global manufacturing PMI output index fell by 2.5 points to a two-year low of 48.5. After having improved in late 2021 and early 2022, the global PMI subcomponent for delivery times fell to a 6-month low of 35.8 (indicating longer delivery times). At the same time, the demand-related components also weakened, led by emerging markets (particularly Russia and China). The domestic orders subindex fell to a 22-month low of 50.3, while the export orders subindex stabilised at 48.2, well below the neutral mark.

…also illustrated by our global supply bottlenecks indicator

The effects of the supply disturbances stemming from the war in Ukraine and the China lockdowns are also visible in our global supply bottlenecks indicator. The broadening of lockdowns in China has added to disturbances in domestic production and transport, which is spilling over to global supply chains. After easing a bit in late 2021, our index has risen over the past few months and is now close to the peak reached in September 2021. This is mainly driven by the ratio ‘output EMs/orders DMs’, which fell back to the lowest level since the initial Covid-19 shock in February 2020. Components such as the lead times for semiconductors, and the delivery subindices for the global manufacturing PMI and for the electronics equipment PMI also indicate heightened supply disturbances. Looking ahead, our base case assumes a cautious reopening in China – within the framework of the strict ‘dynamic clearing’ Covid-19 policy – with a further easing in China’s overall lockdown intensity, as well as a gradual phasing out of Russian energy imports by the West. Coupled with our expectation of a further cooling of demand in developed economies – the typical end-users in global supply chains – following the inflation-hit to consumption and tighter monetary policies, this could help ease supply-demand imbalances in the course of this year. That said, uncertainty related to events in Ukraine (the risk of a Russian gas supply cut-off to Europe) and the Covid-19 situation in China (risk of prolonged lockdowns) remains elevated.

Cost push measures up again

Meanwhile, the spike in commodity prices (energy, metals, food) following the war in Ukraine is the main factor behind the further rise in global cost price pressures, with both the global manufacturing PMI’s subindices for input and output prices rising again in March/April to elevated levels. The disturbances in global supply chains mentioned above will add to pressures for industrial goods prices, although the lockdowns in China have caused some cooling of energy and other commodity prices in recent months.