ECONOMICS COMMENTARY — Aug 05, 2024
Global PMI upturn remains robust in July but pace wanes for second month running
Global economic growth slowed for a second successive month in July but remained among the strongest seen over the past year, according to latest PMI data.
The US continued to lead growth in the developed world followed by the UK and Japan, in all cases thanks to a solid service sector gains. However, the UK also stood out in enjoying faster manufacturing growth. In contrast, eurozone growth came close to stalling. In the emerging markets, India maintained its lead as mainland China's expansion slipped to a nine-month low. However, Brazil's expansion notably hit the highest for over two years.
While sustained jobs growth was reported globally, business expectations for the year ahead fell to an eight-month low, linked to heightened geopolitical uncertainty and concerns over weakening demand.
Global upturn slows in July
S&P Global Market Intelligence's PMI surveys indicated that the global economy expanded for a ninth successive month in July. The rate of growth slowed slightly for a second month in a row but remained among the strongest seen over the past year.
The headline J.P. Morgan PMI, covering manufacturing and services in over 40 economies, fell from 52.9 in June to a three-month low of 52.5.
At its current level, historical comparisons indicate that the PMI is broadly consistent with the global economy growing at an annualized rate of 2.75%, with a 3.0% rate having been signaled for the second quarter of 2024 as a whole. That compares with an average growth rate of 3.1% in the decade prior to the pandemic.
United States leads developed world for third straight month
The US led the developed world's largest economies for a third successive month, with output growth losing only slight momentum from June's 26-month high. Robust services activity growth helped counter a near-stalling of manufacturing growth.
Robust and accelerating growth was seen in the UK and Japan, albeit below recent peaks. While both saw improved services performances, a strengthening manufacturing economy in the UK contrasted with a renewed fall in Japan's factory output.
Growth meanwhile slowed to near-stagnation in the eurozone; its worst performance in the recent five-month upturn. Slower services growth was accompanied by a deepening factory decline. Output fell in France and Germany, and barely rose in Italy, leaving Spain as the only large euro nation reporting growth, though even here the expansion waned.
Australia reported a contraction - albeit marginal - for the first time since January as services growth almost stalled and manufacturing contracted.
However, it was Canada that reported the steepest contraction of the major developed markets, with output falling for the thirteenth time in the past 14 months amid declines in both services and manufacturing sectors.
India leads emerging markets as mainland China lags
India again led the four BRIC economies by a wide margin, as has been the case since early-2022. Growth held close to recent 14-year highs despite dipping slightly in both manufacturing and service sectors.
Strong growth was also recorded in Brazil, where the rate of expansion accelerated to the fastest since June 2022. The sharpest service sector upturn for just over two years was accompanied by manufacturing growth reviving further from the near-stalled picture seen in May.
Russia also reported an improved performance after output fell into marginal decline in June for the first time in one-and-a-half years. Growth was the strongest since April, though remained well below recent highs seen at the start of the year, particularly due to a subdued service sector performance.
That left mainland China, as the worst performing BRIC economy in July. China's growth slowed to the weakest since last October's stagnation. Although services activity accelerated, it was still the second-weakest growth seen over the past eight months. Manufacturing output growth meanwhile came close to stalling with the marginal rise in production the smallest seen in the current nine-month upturn.
Widening sector divergence
Of the major economies tracked by the PMIs, only Canada reported falling service sector activity, with India, Brazil, the US, Japan and Spain reporting the strongest gains.
Manufacturing output meanwhile fell in Germany, France and Italy, dragging output in the eurozone lower, as well as in Australia Canada and - to a marginal extent - Japan.
Future optimism at eight-month low
Looking ahead, global business expectations regarding output in the year ahead fell to an eight-month low in July, the current index reading of 61.9 falling further below the survey's long-run average of 63.2.
Future expectations deteriorated especially sharply in Italy, Spain, the US, France and Brazil, but improved the most in the UK, followed by India and mainland China.
In many cases, gloomier prospects reflected geopolitical concerns, worries over high prices and interest rates, and recent signs of customer caution and cooling demand.
Access the Global Composite PMI press release here.
Chris Williamson, Chief Business Economist, S&P Global Market Intelligence
Tel: +44 207 260 2329
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Purchasing Managers' Index™ (PMI®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
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