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The global economy has continued to slow down in April more than consensus forecasts projected according to “nowcasts”, while forecasters continue to believe that this slowdown will prove temporary. Meanwhile PMI data show that rates of expansion in both production and new orders eased in April to the weakest since mid-2013.
Gavyn Davies, a macroeconomist who is chairman of Fulcrum Asset Management, writes on his FT blog that US data remains poor after a first quarter of 2015 when annualised growth was at 0.2%. US growth is estimated at 1.8%, down from 2.0% last month.
Davies says Japanese activity in both the industrial and retail sectors has also been weak while the UK slowed to about 1.8% in the run up to this week’s general election. Chinese activity fell sharply last month, and the estimated annual rate of growth is now 5.3%. However, Eurozone growth improved slightly to 1.8%, following an encouraging pick-up earlier in the year. "The gap between US and Eurozone growth has, for now, disappeared completely."
Separately the FT reports today that China’s labour force is shrinking and the “migrant miracle” that powered its industrial rise is mostly exhausted, removing the factors that propelled the country’s meteoric development, according to leading economists.
Cai Fang, vice-president of the Chinese Academy of Social Sciences, a think-tank that advises the government, estimates that China’s potential GDP (gross domestic product growth) fell from 9.8% in 1995-2009 to 7.2% in 2011-15 and 6.1% from 2016-20.
A shrinking labour force is one of the main drivers. Since Deng Xiaoping launched market reforms in 1978, 278m migrant workers from rural villages have moved to work in the cities.
“From 2005 to 2010, the growth rate of migrant workers was 4%. Last year it was only 1.3%. Maybe this year it will contract,” said Cai.
The latest PMI (purchasing managers' index) global survey was at a 21-month low of 51.0 in April, down from 51.7 in March, the JP Morgan Global Manufacturing PMI — a composite index1 produced by JPMorgan and Markit in association with ISM (US Institute of Supply Management) and IFPSM (International Federation of Purchasing and Supply Management) — has now signalled expansion since December 2012.
Manufacturing production growth also eased to a 21- month low in April. The slowdown was broad-based in nature. Rates of expansion in previous standout performers the US and the UK were at four-and five month lows respectively, China stagnated and Japan, South Korea and Taiwan all contracted. Growth in the Eurozone manufacturing sector held up comparatively well. Although the rate of expansion eased slightly over the month, it was still close to March’s ten-month high and above the global average for the second straight month.
Ireland, Italy, Germany and Spain all reported solid expansions in manufacturing output, while Austria returned to growth following a sequence of contraction. In contrast, the downturns in the French and Greek manufacturing sectors continued, with rates of contraction accelerating to the fastest since December 2014 and June 2013 respectively.
Global manufacturing new orders expanded at the weakest pace in almost two years during April. This partly reflected a near-stalling of growth in incoming new export business. New export orders decreased in the US, the UK, France, Canada, Taiwan, South Korea, Turkey, Indonesia, Brazil and Greece. China and Japan reported only minor rises.
April data signalled an increase in global manufacturing employment for the twenty-first successive month in April. However, the rate of job creation has remained, at best, only moderate.
Joseph Lupton, senior economist at JPMorgan, said: “The April PMI shows a loss of momentum in global factory output in April, with production and new orders both decelerating. Combined with a pickup in the finished goods inventory PMI, the April readings suggest the headwinds to global industry will continue further into this quarter. Our forecast looks for goods demand to bounce in the coming months, aiding in the apparent need for some inventory adjustment. Assuming this stronger demand picture is sustained, the weak performance of global manufacturing so far this year should hopefully improve towards mid-year.”
The Global Report on Manufacturing is compiled by Markit based on the results of surveys covering over 10,000 purchasing executives in 32 countries. Together these countries account for an estimated 89% of global manufacturing output.