The following is an extract from IHS Markit's monthly PMIoverview presentation. For the full report please click on the linkat the bottom of the article.
Global PMI subdued amid smallest rise in orders for twoyears
The latest business surveys showed worldwide output risingfurther mid-way through the fourth quarter, but falling trade flowscontinued to subdue the overall pace of expansion. Although globalbusiness activity grew at a marginally improved pace for a secondsuccessive month in November, according to the latest JPMorgan PMI,the expansion was one of the weakest seen over the past two years.The Global Composite PMI, compiled by IHS Markit, rose from 53.0 inOctober to a three-month high of 53.2.
Growth is also likely to soften again in coming months:sentiment about the year ahead and inflows of new work bothdeteriorated to the worst recorded for just over two years. Thesurvey data showed that subdued manufacturing growth and a furthermarginal drop in global exports acted as a drag on the globaleconomy growth. Service sector growth accelerated, led by astronger emerging market performance, which helped offset a slowerrate of developed world expansion.
PMI numbers for October and November suggest that furthermomentum has been gained in the final quarter of 2018. The soliddata suggest that Brazil's economic recovery has progressed afterpolitical uncertainty and truck drivers' protests subdued businessactivity earlier in the year, with goods producers, serviceproviders and consumers displaying post-election optimism. Thedomestic currency has meanwhile firmed compared to pre-ballotingrates, while Brazilian stocks have jumped.
In October we introduced a new series of notes on emerging markets, which began by lookingat some of those considered most vulnerable at present. One ofthese was Brazil and this month we examine the latest developmentsin the nation.
GDP growth strengthens, PMI data point to furtherimprovements
A picture is building of an economy that is regaining growthmomentum. After being unchanged for three quarters in a row at just0.2%, the quarterly rate of GDP growth in Brazil climbed to 0.8% inQ3, its best performance since the start of 2017 when the economybenefited from a booming agricultural sector. Official datarevealed a more balanced upturn, with the agriculture &livestock (+0.7%), industry (+0.4%) and service (+0.5%) sectors allshowing improvements. Encouragingly, domestic consumption showedsigns of revival, while investment rose at the steepest pace sincethe end of 2009.
While official results for the fourth quarter are not scheduledfor release until 28th February 2019, timely PMI data can offervaluable insight regarding the trajectory the economy is taking.November readings highlighted an accelerated upturn in the combinedmanufacturing and services activity that was the sharpest since February 2018,building on October's modest increase.
The close connections between the Czech and German manufacturingsectors mean that expansions or contractions in the eurozone'slargest economy are often reflected in the performance of theformer, and 2018 is proving to be a case in point. Althoughstarting the year in fine health, the wellbeing of the Czech goodsproducing sector has taken a turn for the worse in the latterstages of 2018, reflecting the difficulties faced in one ofGermany's most influential industry - automotives.
November data from both the IHS Markit Czech Manufacturing PMIand Business Outlook Survey highlight weaker confidence among goodsproducers towards future output, stemming to a large degree from aslowdown in the wider automotive sector. Although many have drawnattention to the impact of recent changes in emissions testing as acause of weaker economic growth in 2018, it is important to notethat slower demand growth and further emissions regulations couldweigh on production going into 2019.
Lacklustre demand growth
The emergence of recent official data spelling out troubles inthe autos sector since the introduction of the WLTP (WorldHarmonised Light Vehicle Test Procedures) have shown the short-termimpact that new emissions regulations can have on productionprocesses. Evidence of this was seen in a 9.9% fall year-on-year inGerman passenger car registrations in November. However, issues inthe sector stem from both the demand and supply side. As a keycontributor to the European automobile sector supply chain, theCzech manufacturing sector can be seen as a litmus test for thewider industry's health.
Damage to global trade ties and ongoing uncertainty towardstariffs (both between the US and China and the US and the EU) haveled to subdued production forecasts for automotives in 2019. IHSMarkit currently expects output growth of 1.0% in the Europeanautomobile industry next year. Weaker client demand in China andTurkey are notable factors weighing on the output outlook; however,the effects of the introduction of new emissions standards in China(China VI Standard) in mid-2020 may also become apparent ascompanies adapt business processes through 2019 ready for changesin such a dominant market.