Economy in Brief: June 2026

With 25 countries in the mix, it can be hard to draw a simple summary statement about the condition of the global economy judging from the S&P composite PMIs. The manufacturing sector has recently been doing better, while the services sector is still in an extreme bout of lethargy globally. Fewer countries issue specific services sector indexes than issue manufacturing or composite PMI results.

The services sector tends to dominate the composite readings, so what we see this month is a great deal of weakness in the S&P composites, reflecting service sector weakness. The 18 early reporting manufacturing reporters registered a median queue ranking in their 67.7 percentile; that compared to a median ranking of 26.2% for this group of 25. However, the two groups are not the same. If we recalculate for the 10 common reporters, we get a median manufacturing ranking of 61.5% compared to a composite median ranking of 23.8%; for those same ten, the services sector median ranking was in its 16.9 percentile. That is a ranking that seems to flirt with recession potentially. To that point, in May 2026, eleven of twenty-five composite PMIs registered diffusion values below 50, indicating contraction.

In May, among the 25 reporting composite PMI reporters, 44% of them were weakening month-to-month, which is less than half but still a very large proportion and not particularly good news; this followed 48% weakening in April and 84% weakening in March. So, with the heating up of war in the Middle East and the closure of the Strait of Hormuz, service sector conditions have gotten a lot worse even though it might have seemed logical that it would be the manufacturing sector that would suffer. The PMI data do not bear out that expectation. In March, the global PMI data improved only in Spain, Sweden, Zambia, and Ghana—thin gruel for good news.

On a monthly basis, there is sequential weakening in progress in the European Monetary Union, France, Ireland, and Japan.

If we look at the broader sequential data over three months, six months, and 12 months, we see that conditions have gotten progressively weaker, with 82.6% of these reporters weaker over three months, 78.3% weaker over six months, and 43.5% weaker over 12 months. There is progressive weakening on this broader timeline in the United States, Spain, India, Saudi Arabia, and the United Arab Emirates. There's sequential improvement indicated only in Singapore.

The queue percentile standing evaluations at the far right of the table rank and therefore order the data across these reporters, on observations back to January 2021. On that relatively long timeline, only 5 reporters have current readings above their respective 4.5-year. medians. Those are Singapore, China, Nigeria, India, and Sweden. On this timeline, the French composite is at its absolute lowest ranking of the period. The European Monetary Union reading is in its lower 10th percentile, with the four largest monetary union economies each having a ranking below their respective 35th percentiles. The U.S. ranking is in its 26th percentile, roughly just above the bottom quarter of its raked results. The U.K. is in its lower 18th percentile. Japan is near its median, at its 49th percentile; however, none of these readings are reassuring. For example, Japan’s near 50th percentile ranking compares to a weaker U.S. ranking, but the U.S. composite PMI diffusion value at 51.5 is stronger than Japan’s at 51.1. But the U.S. value is weaker relative to its history back to January 2021. Japan’s higher ranking actually simply refers to performance that is still quite weak, but nearly as good as it has done over the past 4.5 years. It is important to keep the relative (ranking) and the absolute (diffusion value) comparisons separate. Diffusion values are not presented in the table—except for a few averages/medians—because putting those data in table for the countries is prohibited by the data provider.

The weakness is broad-based. While the manufacturing sectors have been digging out, the services sectors have continued to worsen during the improvement in manufacturing—which I take to be a bad sign. Manufacturing tends to be the more sensitive signal, and we often think of manufacturing showing a turnaround in the economy before it becomes a process involving the entire economy. But in this case, it doesn't look like the manufacturing revival is progressing across the various economies. Certainly, one reason could be rising oil prices and the fact that oil prices eventually become an input to just about every single business—because if it's not a direct input, it's an indirect input through its impact on transportation costs.

Broad but mild slippage If we look at the average and median PMI values, we can see that while there has been broad slippage, the slippage has been quite slow. The average reading for this group over 12 months is the PMI at 52; that has slipped to 50.8 over three months and sits at 50.8 in May. The median for the group is 51.8 over 12 months; it has slipped to 50.6 over three months and registers 50.2 in May. The bad news is more that these economies have lingered at very weak readings than that there is technical slippage in progress. Over 12 months, there were only four of 25 reporters with PMIs below 50. Over three months, that figure has mushroomed to 9, and as of May, there are 11 reporters with PMIs below 50, indicating economic contraction. These are poor trends and clearly ones to watch. Weakness has been driven by the services sector where we get fewer observations and data, and this is a sharp counterpoint to some of the manufacturing data that have been improving.

The chart shows European Monetary Union inflation using seasonally adjusted data to produce 12-month, 6-month, and 3-month compounded annual rates of change for the core, yielding a clear picture of acceleration. The core rate is supposed to be relatively less affected when energy prices spurt. However, in this case, the increase in energy prices is so large that it is being passed on across commodity classes because of its impact on transportation costs, an effect that is ubiquitous.

Every product must be brought to market, and apart from that, products have different intrinsic exposures to energy as a direct or indirect input, either because it's a chemical, it uses plastic, or it's more insulated as a service. However, the impact on transportation costs is broad.

The table shows year-over-year inflation monthly, and there you can see that the headline is moving up more than the core. However, the core rate is moving up, and at 2.5%, it's far enough above the ECB's 2% target for it to be considered too strong. The headline rate in May at 3.2% is considerably higher and stronger, but it's also more affected by energy prices and therefore it may represent something the ECB could view with a bit more flexibility. However, the strength in the core is going to cause the ECB more problems.

Along the bottom of the table, we look at the details on inflation to see the incidence of acceleration of inflation over three-month and six-month periods to give trends a bit of breathing room to develop. For both the headline and the core, the breadth of inflation is rising. Headline and core measures both are rising in nearly two-thirds of the categories (62.5%).

We take a broader look to see where inflation ranks historically on data back to 2001. The headline measure has inflation at the 88.5 percentile, while core is at the 86.2 percentile. Both demonstrate considerable strength in May. Looking at the details by category by stepping back one month to April, we find that one of the highest standings for inflation is in transportation, which is no surprise given what's going on with energy prices. Communications products, however, have a high inflation at their 98.7 percentile. Personal care products have a standing on their 92nd percentile, another high standing. Inflation for recreation and culture has a relatively low standing in its 36th percentile, and house furniture and maintenance prices have only a 16.4 percentile standing.

There are differences in inflation rates and inflation pass-throughs from energy effects. But the dispersion of inflation is only about a top one-third phenomenon—high but not extreme. That suggests that the impact on inflation, while significant, is not—at least not yet—dominant. We'll be watching indicators like this to get some idea of how impactful and broad the effects of inflation from the Middle East conflict are and how they will develop. For now, the impact is substantial and still seems to be in full swing.

In this week’s Letter, we examine a tale of two halves between China and India, highlighting the contrasting relationship between economic fundamentals and currency performance in Asia’s two largest emerging economies. In China, a recent run of softer economic data has pointed to slowing growth (chart 1), yet the Chinese yuan has remained one of the region’s strongest-performing currencies this year (chart 2). India presents the opposite picture: economic growth prospects remain among the brightest in Asia, but the Indian rupee has continued to face downward pressure amid persistent foreign investor outflows and a marked decline in central bank foreign exchange reserves (chart 3).

Beyond China and India, the broader region is also confronting emerging inflation risks. In addition to elevated energy prices stemming from the closure of the Strait of Hormuz, concerns are growing over the potential development of a “Super El Niño” event, which could weaken agricultural output and add further inflationary pressure through the food channel (chart 4). At the same time, the battle between inflation concerns and AI-driven optimism continues to shape market sentiment. Equity markets in major AI beneficiaries such as Taiwan and South Korea have seen their market capitalisations surpass those of several larger developed markets, including Germany (chart 5).

Moreover, the benefits of the current AI investment cycle are not confined to the region’s technology leaders. Economies such as Thailand are also seeing positive spillovers from the current AI investment cycle. In particular, Thailand has recorded a surge in FDI linked to investments in digital infrastructure and AI-related industries (chart 6). Countries across the region are increasingly positioning themselves to participate in the ongoing buildout phase.

China China’s unofficial manufacturing PMI was released earlier in the week, showing a pullback to 51.8 in May (chart 1), though it remained in expansionary territory. The decline mirrors the weakness seen in the official PMI readings and was accompanied by a sharp drop in new export orders, which fell into contractionary territory for the first time in months. These developments come amid a run of disappointing economic data from China, with growth slowing even in the export-oriented industrial sector, generally regarded as a stronger driver of activity than more domestically focused sectors. This perhaps suggests that while China may be relatively insulated from the effects of the Strait of Hormuz closure compared with other Asian economies, such insulation is not complete, and some adverse spillovers are nonetheless becoming apparent.

Manufacturing PMIs continue to show an uptrend in place. The median estimate for the 18 early reporting countries of manufacturing data is 51.6. It shows expansion at a relatively weak pace, with a slight month-to-month backtracking in the overall median reading for the 18 countries. That median fell by 0.8 points month-to-month. However, the broader readings over three months, six months, and 12 months each are above 50, and each of them shows an increase compared to the previous period. So, while there was a minor monthly setback, the overall reading shows conditions are broadly improving, and output is advancing, in manufacturing. Over a longer time horizon, changes over three months, six months and 12 months are on an improving path.

Diffusion statistics that show that proportion of readings that are getting better reveal a split of 50/50 month-to-month. However, over three months, 66.7% of reporters are improving; over six months compared to 12 months, 72.2% are improving; and over 12 months compared to a year ago, 77.8% are improving. Momentum remains in an upward direction over various horizons even in the face of month-to-month volatility in readings.

The bottom of the table shows grouped results for different batches of countries. The developed country group—the U.S., the U.K., the European Monetary Union, Canada, and Japan—show an improvement over 12 months, six months, and three months. The Asian average shows the same conditions holds with continued improvements in train. However, the BRIC countries show more stasis, with their PMI readings not clearly advancing and hovering just short of an average value of 51 on their pooled diffusion gauge.

The ranked percentile standings have made a great deal of progress over recent months. Currently, the median standing of the full-period medians for the 18 countries in the table shows an 84.7 percentile standing, which is quite impressive. Only five countries—Russia, India, Brazil, Indonesia, and Mexico—have ranked standings below their medians on data back to 2022.

The PMIs remain relatively upbeat this month despite the ongoing war in Ukraine and in the Middle East, and the constraint on traffic through the Strait of Hormuz. The manufacturing sector is showing surprising resiliency in the face of these hurdles for data up to date through May.