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PMI signals slowest global growth since January
Business optimism falls to its lowest level in four years.
The Purchasing Managers' Index (PMI) data from S&P Global Market Intelligence indicates that global business activity expanded in September for the 11th month in a row, but at a slower pace, marking the slowest growth rate since January.
The headline JP Morgan PMI which covers manufacturing and services in over 40 economies, declined from 52.8 in August to 52.0 in September, its lowest reading since the start of the year. Despite remaining above the critical 50 threshold that separates expansion from contraction, the decline points to a notable slowdown in the pace of growth.
At its current level, historical data suggests that the PMI signals the global economy is growing at an annual rate of 2.5%. This is down from the most recent GDP data, which logged a 2.9% expansion in the second quarter and compared unfavourably with the average GDP growth rate of 3.1% in the decade before the pandemic. This indicates that the global economy's growth is now running below its historical trend.
A key factor in this slowdown is the divergence between the manufacturing and services sectors. The latest survey data highlights that whilst manufacturing output is declining, the services sector remains relatively robust, continuing to support overall economic growth despite some signs of deceleration.
Geopolitical factors are playing a significant role in shaping business sentiment. Uncertainty surrounding the US Presidential Election, conflicts in the Middle East, and the ongoing crisis in Ukraine have led to increased caution among businesses, with global optimism falling to its lowest level in four years. Concerns over these developments are contributing to weakened future output expectations and a general decline in business confidence.
Regionally, the data paints a mixed picture. Major economies like the US and India continue to perform well, showing resilience in the face of global headwinds. However, even these countries are not immune to pressures, with signs of softening employment trends and a decline in future output expectations becoming evident. In contrast, economies such as the Eurozone, Canada, Russia, and mainland China are experiencing contraction or stalling, adding to concerns about a broader global slowdown.
In developed markets, the US maintained its lead with strong expansion, whilst the UK, Japan, the Eurozone, and Australia saw a notable slowdown or outright contraction. Amongst the emerging markets, India led the way, whilst mainland China and Russia continued to lag, indicating diverging growth trajectories across regions.
Employment trends remained weak, with global job growth stagnating in September and a sharp fall in manufacturing jobs. The slowdown in hiring was driven by softened order book growth, skill shortages in key economies like the UK and the US, and a cautious outlook among businesses due to economic uncertainties. The labour market's struggles reflect broader concerns about global economic prospects.
Overall, whilst the PMI data signals that global business activity continues to grow, the pace has slowed significantly. The slowdown is primarily driven by manufacturing's decline, geopolitical tensions, and a drop in business optimism to levels not seen in four years, pointing to a challenging period ahead for the global economy.
