ASEAN economies in stable state against external shocks, QNB says  

RIYADH: International economic growth showed resilience in June, maintaining its second-highest level in 13 months, according to the latest S&P Global Purchasing Managers’ Index report.

JP Morgan’s global composite PMI, compiled by S&P Global, fell slightly to 52.9 in June from 53.7 in May. This slight decline reflects a slowdown in the pace of expansion of industrial production and business activity in the service sector worldwide.

Amidst this global trend, Saudi Arabia’s non-oil private sector PMI remained strong at 55 in June, driven by rising demand, increased output levels and a strong increase in employment.

A PMI reading above 50 indicates economic expansion, while a reading below 50 indicates contraction. It measures economic trends in manufacturing based on monthly surveys of supply chain managers that include upstream and downstream activities.

“The global manufacturing PMI for all industries decreased by 0.8 percentage point to 52.9 in June, with the decline being fairly broad across all sectors and regions. While indicating some loss of momentum midway through the year, the index is still in line with a solid pace of global gross domestic product expansion,” said Bennett Parrish, global economist at JP Morgan.

He added: “The decline in new orders and future PMI output may raise the risk of further moderation in growth, but the further move in the employment PMI suggests that underlying fundamentals remain resilient.

Growth in the US and India is accelerating

The report highlighted accelerated PMI growth rates in the US, India and Brazil. In the US, output grew at the fastest pace since April 2022, driven by strong activity in services that offset subdued manufacturing growth.

India led the BRIC economies with strong growth, recovering from an election-related slump in May and posting one of the strongest performances in 14 years in the goods and services sectors.

Similarly, Brazil maintained strong expansion during the year, with both the services and manufacturing sectors making positive contributions after almost halting growth in May.

“June saw another modest acceleration in growth in the US, reversing a slowdown in the wider developed world, while India continued to lead emerging markets by a large margin,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

By contrast, output fell in Canada, which briefly rose for the first time in a year in May, leading to a weakening of the services sector.

“Japan has also slipped back into decline. Although it was only a marginal decline, it was the first decline recorded in seven months. The first decline in services sector output in 22 months was partially offset by output growth for the first time in 13 months,” Williamson added.

Russia reported a slight drop in output, the first decline in 17 months, as a sharp decline in services activity faced resilient manufacturing growth.

Growth has also slowed in China, although it has only repaid some of the substantial gains seen in May and is still posting one of the strongest expansions in a year. But robust growth in the Asian giant’s manufacturing sector helped offset a sharp slowdown in services activity in June.

Meanwhile, the UK reported an eighth consecutive monthly expansion. But growth in manufacturing and services slowed, resulting in the weakest growth this year, although this is partly due to a pause in spending ahead of the looming election, S&P Global added.

Global subsectors stable

The US-based company noted that growth became broader-based across all global sub-sectors amid a slowdown in expansion.

“All 25 subsectors covered by the PMI avoided a global contraction in June for the first time since July 2021. Expansion was reported across general industries, which reported stable production,” Williamson said.

The report said output grew at the fastest pace in the financial services category, while the business services, consumer goods and intermediate goods sectors also saw solid growth.

However, the rate of expansion was relatively moderate in the consumer services sector.

“Other notable developments include a two-year high for chemicals and plastics output and a 28-month high for forestry and paper products, while the auto and parts sector finished its best quarter since the start of 2021,” the analysis added.

Global employment increased for the second month in a row in June, with the pace of job growth reaching the highest year-over-year pace in both the manufacturing and services sectors.

“A more pronounced increase in the number of employees began in both the manufacturing sector and the service sector, while the sharpest increase was again recorded in the second sector. Of the countries included in the survey, only China and Germany saw reductions in the number of employees,” S&P Global said.

Outlook for the future

Looking ahead, S&P Global warned in June of a deterioration in the near-term global outlook, with business expectations for the year ahead hitting a seven-month low, mainly affected by post-election uncertainty in India and Europe, including the UK and France.

“However, the mood was also weighed down by concerns about the demand environment in the future, which was reflected in the slowdown in the growth of new orders from May’s annual maximum, which left the work in progress almost unchanged during the month. This is usually a sign that current capacity is sufficient to meet existing demand,” the agency concluded.

Leave a Comment