Manas Chakravarty Moneycontrol News
Cast your eyes on the accompanying chart. It shows a steady deceleration in the JP Morgan Global Manufacturing Purchasing Managers Index (PMI) all through 2018. A reading above 50 denotes expansion from the preceding month, while one below 50 indicates contraction.
The latest reading for December 2018 is at 51.5, the lowest level since September 2016. Countries with PMI figures below the neutral 50 mark included China, France, Italy, Taiwan and South Korea, which means their manufacturing activity has contracted from the previous month. Fall in the Chinese manufacturing PMI took its toll on January 2, when most markets opened for trading.
But the slowdown is not confined to China. The US manufacturing PMI for December 2018 was the lowest in 15 months. The reading for the Eurozone was the lowest since February 2016.
Business confidence too is in bad shape. David Hensley, Director of Global Economic Co-ordination at JP Morgan, said of the global manufacturing PMI reading for December, “Output growth remained stubbornly low, rates of increase in new orders and employment slowed and international trade flows deteriorated. The outlook also remains relatively lacklustre as business confidence dropped to its lowest level in the series’ history.”
The silver lining, from the point of view of oil importers like India, is that if the global economy is slowing, crude oil prices are likely to remain low. The markets also expect the US Federal Reserve not to raise rates this year, although there’s also a sizable body of opinion that it will not listen to markets. Federal Reserve Chairman Jerome Powell has said its balance sheet contraction programme is on autopilot. One big question is: If the slowdown gathers momentum, with interest rates already so low, will a monetary stimulus work?
The big risk though comes from China. To be sure, the Chinese authorities have said they will selectively ease funding constraints for private firms. But Bloomberg quoted China Beige Book last month as saying, “The problem isn’t lack of borrowing, it’s that plentiful borrowing isn’t boosting growth.” In China’s case, the growth from successive doses of stimulus has become less and less.
What could change the outlook rapidly? A breakthrough in the Sino-US trade talks next week. Perhaps the surprise fall in the China manufacturing PMI and the woes of US companies in China, including Apple, will help reach a deal.
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