Group Economics
Daily Insight
Macro & Financial Markets Research Arjen van Dijkhuizen, Aline Schuiling, Kim
Global manufacturing weakness
Liu +31 20 343 5606
24 September 2015
China leads decline in global manufacturing PMI’s; more stimulus expected to keep slowdown gradual Downside risks to eurozone inflation are building… … but Mr Draghi dampens market prospects for more QE
China leads decline in global manufacturing PMI’s
Eurozone’s composite PMI resilient
The flash estimates for the main manufacturing PMIs declined in September, adding to the evidence that the global manufacturing sector is cooling down. In the US it was
60
unchanged at 53, weaker than the average of the past few
55
years. Meanwhile China’s flash manufacturing PMI published
50
by Caixin/Markit fell to 47.0, the lowest level in 6.5 years. Most
45
sub-indices, including new orders and new export orders fell
40
further. Still, Caixin’s survey focuses on small and medium-
35
sized enterprises. These are benefiting less from the government’s general easing policies, although they will profit from targeted policies directed at SMEs. The Manufacturing
1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0
30 04 05 06 07 08 09 10 11 12 13 14 15 GDP (rhs)
Composite PMI (lhs)
PMI reported by NBS, which includes large (state) enterprises, is less bleak, although it dropped to 49.7 in August.
Source: Thomson Reuters Datastream
China’s government stimulus to keep slowdown gradual Looking at the broader economy, services are holding up better than industry. The Services PMIs are still well above the neutral 50 mark. Moreover, government stimulus typically works with some lag. The government is adding fiscal stimulus, particularly in the form of infrastructure spending. Fiscal spending rose rapidly in July/August, and the effects will likely start to filter through soon. We also expect more monetary
Downside risks to eurozone inflation are building… The price components of the eurozone’s PMI report showed that global manufacturing prices continue to decline, adding to the evidence that downside risks to eurozone inflation are building. The manufacturing input price index dropped 44.1 in September from 49.6 in August, while the output price index fell to 48.8 from 50.5.
easing, such as further policy rate cuts (25 bp in 2015) and RRRs (200 bps in 2015-16). The PBoC will also keep using its standing facilities, targeted lending to state banks and targeted RRR cuts for banks with a specific mandate (e.g. SMEs).
… but Mr Draghi dampens market prospects for more QE In a speech before European parliament, ECB president Mario Draghi confirmed that renewed downside risks to the inflation outlook have emerged. Inflation is still expected to rise towards
Eurozone PMIs resilient Although the eurozone’s manufacturing PMI fell as well in September (to 52.0 from 52.3 in August), the overall composite PMI was quite resilient. It declined to 53.9, down from 54.3 in August. As such, it has returned to its July level, which is consistent with GDP growth of around 0.4-0.5% qoq. We think the positive impact of strengthening domestic demand and the euro depreciation since the middle of last year, compensates for a weakening global economy. This picture was also painted by consumer confidence, which, on balance, increased slightly between September and July, despite the correction on equity markets. Sentiment probably benefited from the ongoing gradual labour market recovery and rising real wages.
the end of the year, although the increase will be marginally lower than expected. He reiterated his dovish stance that the QE programme can be altered in size, composition and duration. However, Mr Draghi also downplayed the likelihood of immediate action. According to the Mr Draghi, the ECB needs more time to asses if current downside risks to the outlook are of permanent or transitory nature. Similar remarks were made earlier today by the Governing Council members Nowotny and Jazbec. Despite these remarks, we still stick to our base case scenario that the ECB will step up its monthly QE purchases by EUR 20bn before year end.