- Rising November PMIs signal stronger global growth
- Asia seems to be getting over the tapering shock
- Dutch PMI sharply higher, with exports surging
Here comes stronger growth
The first workday of the month sees the publication of business confidence indices in the manufacturing sector in many countries. It allows us to take the pulse of the global economy. Yesterday’s data paint a picture of gradually, though not uniformly strengthening momentum.
The session kicked off on Sunday when the official PMI for China for November was released, which was unchanged, which was better than expected. Korea and Taiwan, two significant industrial powers, registered a modest rise in their PMIs, in both cases the fifth consecutive monthly increase. This is very relevant as both economies are highly exposed to and integrated into the world trade cycle. India saw a more significant improvement, but that is a much more domestically focussed economy. Indonesia saw a modest decline, while Russia’s PMI fell below 50. Turkey, also an economy exposed to global trade, saw a meaningful rise and its PMI has risen sharply compared to four months ago. The tentative conclusion I draw from all these PMIs in emerging economies is that these economies are getting over the shock of higher interest rates and capital outflows during the ‘tapering dry run’, which began early May and lasted until mid-September when the Fed decided not to start tapering after all.
The picture in Europe was very encouraging, although I am perhaps biased as the Dutch PMI rose sharply: 56.8 in November versus 54.4 in October, the highest level since April 2011. This is a clear sign that the Dutch economy is pulling out of recession. Strength was broad based. As is typical for a recovery in the Netherlands, export orders were strong (59.4), but perhaps the biggest surprise was the strong rise in employment: 52.6, versus 50.3 in October. The official unemployment statistics have recently shown a modest improvement and yesterday’s PMI report suggests this trend is likely to continue.
The PMI for the eurozone as a whole came in at 51.6, a touch higher than the preliminary reading and also higher than October. Germany and Italy saw an improvement in their PMIs, while the earlier reported large drop in France turned out to have been not quite as large. After 49.1 for October, the initial result for November was 47.8, which was revised to 48.4. But Spain saw a big fall: 48.6 after 50.9 in October. Outside the eurozone, the UK’s PMI rose sharply: 58.4, following October’s 56.5. This was the third highest reading on record (history goes back to 2006). The conclusion I draw is that the European economy might positively surprise in the period ahead, though one must bear in mind that a gap between confidence indices and harder data has opened up and has so far been quite persistent.
Two rival indices of business confidence were released in the US yesterday. The final reading of the Markit PMI, 54.7, was a little higher than the initial estimate for November of 54.3 released earlier and significantly higher than October’s 51.8. The authoritative ISM index, which has a history going back to the 1940s, also surprised on the upside: 57.3, from 56.4 in October. The current level is indicating an acceleration of GDP growth to 3% and higher. All important components were stronger. Arguably most impressive was the export-orders component, which rose from 57.0 to 59.5, reaching one of the highest levels on record.
The overall conclusion is unambiguous. While business confidence was weaker in several countries (a.o. Indonesia, Russia, Brazil), confidence is strengthening in the economies with strong links to global trade, either as drivers or as followers. The implication is that global growth is set to broaden and strengthen.