Summary and outlook

  • Global leading indicators showed growth is on retreat across the board, as both Chinese, US and particularly European PMIs all disappointed. The main drag came from Europe, where austerity and uncertainty surrounding the Greek election and the state of the Spanish banking sector continue to depress growth, leaving PMIs well in recessionary territory for the majority of countries. At the same time, the OECD global leading indicator has started to show some weakness, indicating a loss of momentum.
  • We believe surveys will stay weak in the short term. There is a risk that US industry will start to feel the global manufacturing slowdown more and that the ISM could head lower on this account. Chinese PMIs are also expected to show some weakness in the short term, as the European debt crisis intensifies. We expect European PMIs to remain depressed as the euro is entering a decisive phase.

Details

  • Global PMI new orders fell back in April to 51.4 down from 51.8 in the previous month, reflecting the overall deterioration in sentiment. We expect global manufacturing to continue to trend downward over the summer, driven by weakness in Europe. • In the US, Manufacturing ISM fell back to 53.5 in May from 54.8. On a positive note, new orders increased almost two points to 60.1 indicating resilience in US manufacturing. However, several regional surveys have softened and we see a risk that the recent turmoil in Europe will spill over to a slightly weaker ISM in the coming months.
  • In the Euro area manufacturing PMIs came out much worse than expected indicating that the euro debt crisis is taking a bigger toll on growth. A particular concern is that the core countries are starting to give in, with figures such as the German Ifo taking a tumble. Scandinavian manufacturing PMIs weakened as well, with the exception of Norway.
  • In Asia, the overall picture deteriorated. Both NBS’s and HSBC’s PMIs weakened following a few months of stabilisation, indicating that Chinese PMIs could remain weak in the short term. The rest of Asia told a similar story of moderate growth. In the CEE, PMIs showed weakness as the euro crisis dampens demand. Brazil’s PMI weakened somewhat as well, indicating that the bulk of manufacturing recovery is behind us.