Disparities emerge between industrial recoveries - Capital Economics
Global Economics

Disparities emerge between industrial recoveries

Global Economics Update
Written by Gabriella Dickens

While the global manufacturing PMI rose again in July, it masked a divergence in the strength of recoveries among major economies. With growing concerns in recent weeks over a resurgence in the virus in many parts of the world, the recovery of global industry is likely to slow in the months ahead.

  • While the global manufacturing PMI rose again in July, it masked a divergence in the strength of recoveries among major economies. With growing concerns in recent weeks over a resurgence in the virus in many parts of the world, the recovery of global industry is likely to slow in the months ahead.
  • The global manufacturing PMI rose from 47.7 in June to 50.3 in July – its highest level since the coronavirus began to affect production in January. It would have been higher had it not been for firms reporting shorter delivery times from suppliers. Normally, quicker delivery times reflect weakening demand and therefore contribute negatively to the headline number. But, in this case, they probably reflect an easing of disruptions to supply chains. The sharper jump in the output sub-index – which is unaffected by delivery times – from 47.0 to 51.5 is consistent with global industrial production growth rising to around 2% y/y. (See Chart 1.)
  • The global PMI hides a divergence at the country level, though. (See Chart 2.) The UK, China and Brazil saw their headline indices climb further. In China, the PMI rose to a nine-year high of 54.9. And at 59.3, the UK manufacturing PMI reached a two-year high. Meanwhile, despite the fact that the virus is still not under control in Brazil, the manufacturing PMI there surged to an all-time high of 58.2.
  • Japan’s manufacturing PMI also rose, albeit from a lower level. But this is not to say that a catch-up in Japanese industry is around the corner, particularly now that a renewed spread of the virus is likely to prompt another round of business closures. (See here.)
  • The picture was bleaker in Russia and India. (See Chart 3.) Indeed, both PMIs edged down in July, driven by a broad-based deterioration in the index sub-components. While the falls were at odds with the sustained rises elsewhere, the weakness is consistent with the message from our COVID mobility trackers that the recoveries stalled in both countries last month.
  • Meanwhile, at the global level, external demand has continued to recover. The new export orders component of the global PMI is consistent with world trade declining by 3% y/y compared to much sharper falls of 8% earlier in the year. (See Chart 4.)

Chart 1: Global Mfg Output Index & Industrial Output

Chart 2: Manufacturing PMIs by Country

Chart 3: Russia & India Manufacturing PMI

Chart 4: Global Mfg. New Export Orders & Real Exports

Sources: Refinitiv, IHS Markit, CPB Netherlands, Capital Economics


Gabriella Dickens, Assistant Economist, gabriella.dickens@capitaleconomics.com