The 'synchronised global economic recovery' just slowed down sharply

Michel Porro/Getty Images
  • It looks like the peak of the synchronised global economic recovery may already be behind us.
  • The JP Morgan-IHS Markit Global All-Industry Output Index fell to the lowest level in 16 months in March.
  • A broad deceleration was seen across most major sectors and nations.

It looks like the peak of the synchronised global economic recovery may already be behind us.

The JP Morgan-IHS Markit Global All-Industry Output Index — an aggregate measure of manufacturing and services Purchasing Manager’s Indices (PMI) released over a given month — fell 1.5 points to 53.3 in March, leaving it at the lowest level in 16 months.

The index measure changes in perceived activity levels from one month to the next, surveying over 18,000 firms from 40 countries which account for an estimated 89% of global gross domestic product (GDP).

Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating, with the distance away from 50 indicating how quickly activity levels are expanding or contracting.

So at 53.3, while activity levels continued to improve in March, they did so at the slowest pace since late 2016.

Source: IHS Markit

As an indicator as close to real-time as one can get, it suggests momentum in the global economy slowed noticeably last month.

“The slowdown… was reflective of a general easing in rates of expansion across much of the global economy,” said IHS Mahit.

“On a sector basis, growth of manufacturing production eased to an eight-month low and service sector business activity rose to the weakest extent in almost a year-and-a-half.”

Like the headline index, a broad-based slowdown was reported across specific industries as well as individual nations.

“Rates of increase… moderated in five of the six sub-sectors covered by the survey — business services, consumer goods, consumer services, financial services and intermediate goods — [with] only the investment goods category seeing production rise at a stronger pace,” IHS Mahir said.

“National PMI data also signalled a widespread growth deceleration.

“Although all-industry output rose in all of the countries covered, only India and Australia saw improved trends in output.”

Across major nations, IHS Markit noted that growth in the US, euro area, China and Japan eased during the month, falling to two-month lows, 14-month lows, four-month lows and 17-month lows respectively.

Mirroring that performance, all activity subindices, as well as sentiment towards output levels in the future, weakened compared to the levels reported in February.

Source: IHS Markit

New orders grew at the slowest pace in five months while measures on input and output prices also weakened, suggesting that global inflationary pressures are moderating.

“Inflation for both price measures remained sharper on average in developed nations compared to emerging markets,” said IHS Markit.

While this report is a “soft” economic indicator, measuring sentiment based of what firms are seeing on the ground, it points to a likely deceleration in “hard” economic data in the months ahead.

With the early indicators pointing to a moderation in economic activity, and monetary policy globally gradually stating to tighten, it helps explain some of the recent pickup in financial market volatility.

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