The JPMorgan Global Composite Purchasing Managers’ Index (PMI), a gauge of economic activity in both the manufacturing and services sectors across the world, came in at 52.8 in September, the lowest reading in the last two years. That is a glimmer of hope that the rise in crude oil prices will be met with slowing demand, forcing a cap on them. With worldwide manufacturing production too rising at the slowest pace in two years, input prices may also start to cool. Chinese and Asean (Association of Southeast Asian Nations) manufacturing PMIs for September have been weak.
The US Composite PMI, at 54.7, showed solid growth, although it’s the weakest since January. Unfortunately, prices are on the rise. The US PMI survey said: “The combination of reduced spare capacity and robust domestic demand is driving prices charged for goods and services higher at a rate not seen since the global financial crisis.” That accounts for the sharp rise in US yields and indicates that the Federal Reserve will continue with its monetary tightening.
The global report also points out that output charges increased at the quickest pace since the series began in 2009. International trade was particularly weak with worldwide new exports falling for the first time in over two years. It’s unsurprising then that global business optimism is the lowest in two years.
The Reserve Bank of India’s monetary policy report sums up the situation. It says: “Global economic activity has so far remained resilient to ongoing trade conflicts, geo-political tensions and tightening financial conditions. However, financial market volatility has increased as investors continuously reassess the impact of unfolding events. More ominously, global trade growth has begun to slow down. The inflation outlook has deteriorated in many AEs (advanced economies) and EMEs (emerging market economies). These developments taken together will pose a major challenge to global growth prospects in the coming quarters and years.”