The two charts at the bottom of this post give a synthetic vision of the world economy. They present the synthetic index of the PMI/Markit surveys made throughout the world. It is specific to the manufacturing sector. The main reason is that world trade is based on manufactured goods. This can give an intuition of how world trade could behave in the coming week or months.
The first chart put together large developed countries, a BRIC(*) index and the Markit emerging index. The second chart gives details for BRIC countries.
In the first chart, the interesting point is that every index is above the threshold of 50. The economic activity is growing in every large country or region. Looking at the recent past on the chart we see that the situation is stronger than the average seen for the last 30 months.
Since a local low in April 2014, the world PMI index is on a positive trend with June higher than May.
Nevertheless, there is not homogeneity in indices’ profile. In the US and in the UK the index level is high. These economies are booming when we look at these surveys. In the United Kingdom the economy is trending upward for at least a year and the result of this survey is consistent with the CBI survey (a national survey). The two American surveys have a consistent trend even if levels are not the same. They both show a rapid improvement in the manufacturing sector. That’s clearly what is seen in the industrial production index momentum. If we take the ISM survey, then we can expect a rapid and strong improvement in the economic activity during the second quarter. The productivity level calculated from production and employment indices of the survey is consistent with the productivity index published by the Bureau of Labor Statistics. The improvement in the survey, in the second quarter, should lead to a rebound in growth (see here)
In the Euro Area, the outlook from the survey is not as clear as in the Anglo-Saxon countries. As I mentioned it yesterday the momentum is weaker and the horizon foggy. But there are good news from Ireland and from Spain.(see here)
The Japanese index is again well above the 50 threshold. For companies the negative shock from the VAT rate hike has been perceived as temporary. That’s what was also said by the Tankan survey from the Bank of Japan.
But be careful. In 1997 with such a VAT rate hike the end of the story was a recession. We could have the same now. In 1997 and now consumers’ expenditures dropped dramatically in April and May. Consumer demand didn’t recover rapidly from this shock.. In 1997 and now, companies have considered that it was a temporary movement. Industrial production was higher in summer 1997 before declining in the fall and winter because demand was too weak. I am not sure that we are far from this scenario.
In the second chart, we see that the BRIC index rebound is the consequence of the Chinese improvement. the Indian index is stable and Brazilian and Russian indices are still on the downside. The emerging index for June is not know yet but as I mentioned it yesterday (see here) higher Asian index should improve its momentum
First Chart – Large regions
Second chart – BRIC and Emerging Indices
(*) BRIC for Brazil Russia India China