Global Macro: PMIs confirm solid outlook for manufacturing – The global manufacturing PMI rose to an 11-year high of 56 in May, marginally up from April (55.9). Decomposing the various sub-indices, the picture emerges that global demand continues to pick up, while ongoing supply-side bottlenecks (e.g. scarcity in semiconductors and in global container transport) are to some extent capping the rebound in production growth. The global new orders and exports sub-indices rose to new multi-year highs. At the same time, the global PMI-sub index for delivery times has fallen to a record low of 37.4, even below the levels seen one year ago when the initial pandemic shock struck global supply chains. The global input prices sub-index has risen sharply over the past months to a ten-year high of 71.6 in May, reflecting for instance rising commodity prices and a surge in container freight costs. And other sub-indices point to these bottlenecks leading to a building-up of work backlogs and a further drop in stocks of finished goods. Although these disturbances are currently constraining the rebound in global output to some extent, at the same time they will likely extend this rebound assuming that global demand will remain strong (with restrictions being lifted as the vaccination roll-out continues).
Divergence between countries/regions – Notwithstanding the solid outlook for global manufacturing, the various PMIs published for May also make clear that there is quite some divergence between countries and regions. The rebound in global manufacturing is currently being led by developed economies, with the global manufacturing PMI for these countries reaching a record-high of 59.8 in May (including fresh records for the US, eurozone and UK). The similar index for emerging economies (May: 52.0) has fallen back from the peak reached in November 2020. That partly reflects the turnaround in China’s PMIs, mirroring, for instance, the fading of catch-up effects (China was the first to get out of the pandemic) and the turn in China’s credit cycle as Beijing has put more emphasis on financial de-risking. But this EM underperformance also relates to the serious flare-up of covid-19 in some parts of the world (particularly in India/South Asia), with the PMIs in for instance India, Malaysia and Thailand coming down on renewed lockdowns/mobility restrictions against the backdrop of a relatively slow vaccination roll-out.
DM-EM = developed markets-emerging markets