- Concerns about the global economy are elevated, including for industrial sectors.
- The latest JPMorgan-IHS Markit Global manufacturing PMI fell to the lowest level in two years in December, driven by weakness in both advanced and developing economies.
- If the signals from commodity prices are any indication, the slowdown in industrial activity may be close to bottoming.
Concerns about the global economy are elevated in early 2019, sparked by a noticeable weakening in recent economic data, including for industrial sectors.
According to the latest JPMorgan-IHS Markit Global manufacturing PMI, activity levels improved at the slowest pace in over two years in December, driven by weakness in both advanced and developing economies.
Mirroring the slowdown registered by the PMI, global industrial production has also weakened recently with growth decelerating back below the average level not seen since 1980.
Here, look. The chart comes from Macquarie Bank’s sales and trading team.
After a solid increase in both measures since early 2016 — the last period when global growth concerns were acute — momentum is now clearly rolling over, helping to explain why investors have become a little edgy.
However, the worst of the deceleration may now be over if commodity prices are any guide.
The next chart — also from Macquarie — suggests there’s reason to think the slowdown in the industrial sector has now run its course.
It shows global industrial production growth compared to its long-run average overlaid against the RBA’s non-rural commodity price index expressed in US dollar terms.
The latter has been advanced by six months to show the relationship between the two measures.
Where commodity price move, global industrial production, more often than not, tends to follow.
If the signals from commodity prices are any guide, the bottom for industrial activity, for now, may well be in.
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