Global manufacturing remained stuck firmly in the slow lane at the end of the third quarter, hindered by slumping demand in many key EM (emerging markets) countries. Meanwhile in more gloomy data Thursday, it was forecast that this year EM net capital flows will be outward bound for the first time since 1988.


The JPMorgan PMI (purchasing managers' index), compiled by Markit, fell to 50.6 in September compared to 50.7 in August. The latest reading was the weakest since July 2013 and finished off the weakest quarter of manufacturing expansion since the second quarter of 2013. The index is broadly consistent with global manufacturing output expanding at an annual rate of just 1.0% in the third quarter, with the loss of momentum in September suggesting the slowdown could intensify in the fourth quarter.

The survey also highlighted a waning of global trade flows, as manufacturing exports fell to the greatest extent since June 2013, although the rate of decline remained only modest compared to the last significant trade downturn seen in 2012.

Factory headcounts fell worldwide, albeit only marginally, for the first time since July 2013 as firms cut capacity in the face of growing uncertainty about the economic outlook.

Firms benefitted, however, from the first fall in average input prices since February, linked to the recent slide in global commodity prices. Output prices were cut as cost savings were commonly passed onto customers, dropping to the greatest extent since June 2013.

Developed world growth contrasts with deepening emerging market recession

The developed world saw manufacturing activity rise at the joint-weakest rate seen since mid-2013, with the PMI down to 52.1 but remaining above the 50.0 neutral level. With the exception of Canada, all major developed economies continued to expand, led by the US, where a slight upturn in the PMI contrasted with slower rates of growth in the Eurozone, UK and Japan.

Despite the slowdown, the sustained expansion seen in the developed world sat in marked contrast to the deepening downturn recorded in the emerging markets, where the PMI fell to 48.5, its lowest since March 2009 and signalling the sixth successive monthly contraction.

Of the 11 monitored countries which saw a contraction of manufacturing activity, nine were emerging markets. Canada, a major exporter of commodities to emerging markets, also reported a contraction of activity. Greece, whose economy has been ravaged by its debt crisis sat at the bottom of the PMI rankings for a third straight month, though saw its rate of contraction ease since August.

Asia growth at three-year low

global manufacturing 2015China’s PMI sank to its lowest since March 2009, dragging down the PMI for Asia to its lowest for almost three years (with the Asia ex-Japan index holding at 47.1, its lowest since March 2009).

Rates of decline eased in Taiwan, South Korea and Malaysia, but intensified in Indonesia, while Vietnam slipped into decline for the first time in over two years and growth eased to a seven-month low in India.

Other emerging markets outside of Asia also continued to struggle. Brazil and Russia contracted, though rates of decline eased, while growth slowed in Mexico.

Czechs stay top of growth table

The Czech Republic held the top spot in the manufacturing PMI rankings for the fourth month running in September, followed some way behind by Ireland, the US and then the Netherlands.

EM market woes

According to the Institute of International Finance, the global lobby group for banks, emerging markets are set to suffer a net outflow of capital for the first time since the 1988, with foreign investor inflows falling to just $548bn this year — lower than levels recorded in 2008 and 2009 at the height of the global financial crisis — while outward investment flows are expected to reach $1,089bn.

As a result, emerging countries would suffer net outflows of $541bn this year, compared with last year's $32bn of inflows.

The IIF said that the countries most at risk were those — like Brazil and Turkey — which run large current account deficits and have a high level of debt denominated in foreign currencies, and where the political situation was uncertain.

Frederic Neumann, co-head of Asia Economics Research at HSBC, the global bank, on Thursday in the Financial Times wrote that commodities and credit have kept the global economy growing, even at an unspectacular rate, in recent years. However, these two features have lost their potency.      

"Exporters from Latin America to Africa, and Southeast Asia to Australia, New Zealand and Canada, enjoyed soaring incomes, driving up consumption and investment. Even economies that do not possess natural riches benefited: Korea, for example, which sends 60% of its exports to emerging markets, got a lift from global mining investment and rising consumer demand in developing countries. The boom, unfortunately, has come to an end. It is not so much that China stopped buying commodities, but that its slowdown sent prices tumbling and put many projects on ice. Even a rebound in mainland construction, the principal driver for raw material demand, might not deliver a fix: such is the growth in supply that prices are unlikely to recover to their earlier, lofty levels."

Bloomberg has a contrast here between US economic indicators and ones from emerging markets.

Policymakers will need to strengthen policies to address current challenges and help lead the world economy to recovery, Christine Lagarde, IMF managing director, said in a speech Wednesday at the Council of the Americas.

“I am calling on policymakers to make a policy upgrade to address the current challenges,” Lagarde said.

Lagarde, speaking ahead of the IMF-World Bank Annual Meetings that take place October 9-11 in Lima, Peru, stated that the world is at a “difficult and complex juncture.”

The prospect of rising US interest rates, China’s slowdown, a sharp deceleration in the growth of global trade, and the rapid drop in commodity prices are contributing to global uncertainty, she noted.

With conflict and forced migration, Lagarde said, there is the “human toll” from economic dislocation and low activity. More than 200 million people remain unemployed worldwide, income inequality is rising, and women continue to be disadvantaged both in pay and labor market opportunities.

“My key message today, however, is this: with the right policies, strong leadership, and global cooperation, it can be managed,” Lagarde stressed.