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Global Growth Accelerates

Guest Post by Ned Davis Research

Global resiliency

Global economic growth grew at a robust pace in February, according to the latest Purchasing Manager’s Index (PMIs).

Despite many economies still implementing COVID-related restrictions and the vast majority still in the early stages of vaccinations, the resiliency of the global economy speaks to the adaptability and ingenuity of humans during such unusual times.

The global composite PMI, which includes both the services and manufacturing sectors, rose 0.9 points to 53.2 in February. It was the first gain in four months and to its second-highest level since August 2018 (see chart below). 

According to NDR’s calculations, the latest reading in the composite is historically consistent with 3.2% annual global real GDP growth, above the average since 2011.

 There continues to be imbalances in the recovery, with divergences among sectors and countries. Even so, the outlook is broadly favorable, with all countries and sectors reporting overwhelmingly positive 12-month expectations. Indeed, the Future Outlook Index for the global composite is hovering around its highest level since the first half of 2014.

Manufacturing leads again

Global manufacturing continued with its upside momentum, leading overall gains in the global economy. The PMI climbed 0.3 points to 53.9, the highest level in two Global growth accelerates years. This supports our long-held view of a V-shaped recovery in the sector, which is more conducive to social distancing than the larger services sector.

Additional and component indexes were broadly favorable. Output growth accelerated, while employment expanded at its fastest pace in nearly two years. New orders growth, however, softened to a five[1]month low. But compared to the inventories index, orders are still significantly exceeding the former, indicating that output growth should remain robust in the coming months.

Moreover, manufacturing export orders, which were clobbered by the trade war and then by COVID, grew at a faster pace in February (chart at right). The increase also broadened by country, with nearly 60% reporting expanding orders, led by Germany and Taiwan. This is still far short of normal expansions, but a vast improvement from the rock-bottom lows in 2020.

Amid signs that COVID continues to cause supply chain disruptions, supplier deliveries slowed at the second-fastest pace on record. Nearly all countries reported supply chain issues (with the exceptions being India and Thailand).

Breadth broadens

The expansion in manufacturing continued to broaden, indicating that the recovery remains firmly on track. The share of countries with expanding manufacturing industries rose to 80% in February, the largest share since October 2018.

Services picking up

 Although the services sector has consistently lagged manufacturing during the age of COVID, the sector showed some positive signs in February. The global services PMI jumped 1.2 points to 52.8, a four-month high. Output should improve in the coming months, as new orders grew at the fastest pace since January 2020. But employment slipped into contraction, while backlogs continued to shrink.

Not surprisingly, the key culprit dragging down the services sector is consumer services, which fell at a faster pace in February and for the 13th straight month. At the same time, financial services are growing at the quickest pace since at least 2014, as rising savings has likely fueled demand. 

Services breadth, however, remained in the doldrums. The share of economies with expanding services industries edged up to 39%, a far cry from the 90%-plus readings observed during most expansions. But the share of countries that reported month[1]to-month gains in their PMIs rose to over 60%, a sign that downside momentum is moderating.

Global inflation rising

 Amid supply chain disruptions, higher commodity prices, and a resumption in demand, global price pressures continued to build in February. The global composite input price index surged to its highest level since September 2008, while the output price index jumped to the highest since records began in 2009. The increases were significant in both the services and manufacturing sectors. However, the faster[1]growing manufacturing sector had an easier time passing along its higher input costs to customers.

The rising output price indexes will likely feed into consumer prices in the coming months, in line with NDR’s view of a pick-up in inflation this year. Disinflationary pressures remain strong, particularly in the developed world, which will likely keep inflation anchored in the intermediate- to long-term.

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