Manufacturing PMIs Show Step Back in Much of Asia

The euro area showed its manufacturing PMI gain in May as the manufacturing PMIs gains in three of the largest EMU economies. But there were step backs in 8 of these key 15 markets. There were also eight for which the three-month average stepped back last month as well. Only five countries show weaker results over three months than over six months. But these are significant five countries: the U.S., China, South Korea (whose PMI is also below 50), Taiwan, and Russia. However, only China and Russia have three-month readings below their 12-month average readings. That means that broadly conceived positive momentum is still in train.

In addition, only three of the reporters have manufaturing PMIs below their median values since January 2012. These are Mexico, India, and South Korea.

Seven countries/regions have queue or rank standings in the top 15% of all values since January 2012. This is a very solid set of readings. The euro area, Germany, and France are near the top of the list. Brazil is also strong on this relative sale as are Canada, the U.K., and Japan. But apart from Brazil, the list is very much weighted to Europe. Canada trades a great deal with the U.S. and the U.K., two countries that stepped back on the month. Brazil is showing a relative reading that is high despite a low absolute level of reading as it is in the early stages of dealing with problems that have been plaguing it. The central bank in Brazil just cut its key Selic lending rate by 100bp today.

Despite these high ratings for much of Europe, the ECB has been making news this week as Mario Draghi has been insisting that the EMU still needs a stimulative monetary policy. That acknowledgment puts the high PMI rating for Europe in a different light. Its performance is better than it has been, but Europe is still not firing on all cylinders.

Globally, growth is being damped. Global demographics a real issue as populations are maturing and aging. Developing economies are trying to ride production increases based on export-led growth to faster development. But this process undercuts the developing economies that are the source of the demand. As developed economics run bigger trade deficits, they become more indebted, workers are displaced and growth slows. This 'development model' has been in its final days for some time. The global financial crisis has helped to under cover its unsustainable folly. Developing countries wishing to grow faster need to develop more balanced models of growth. For the time being, there appears to be too little demand to satisfy everyone and that is breeding conflict.