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Uncertainty Slows Business Growth in USA and EZ

Stockholm (Ekonamik) – According to Flash estimates of the Composite PMIs compiled by IHS-Markit, USA and Euro-Zone business growth slowed down in May. At country-level, while German growth remained “modest” France’s figures suggest the country experienced its fastest growth in six months, little though that may have been.

The composite index is a weighted average of the Services PMI Activity Index, of the Manufacturing PMI and of the Manufacturing Output Index. PMI levels above 50 are associated with growth and expansions in the relevant sectors, while levels below 50 tend to be consistent with decreases and contractions.

Trade War Weighs on USA

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IHS-Markit’s flash estimate of the Composite PMI for the USA was measured at its lowest for three years and is historically consistent with GDP growing at an annualised rate of just 1.2% in May, according to the press release. The estimated increase for new business in May was the lowest on record since this survey began in October 2009. Jobs grew at the slowest pace in two years.

“Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence,” commented Chris Williamson, Chief Business Economist at IHS Markit. “Worse may be to come, as inflows of new business showed the smallest rise seen this side of the global financial crisis,” he warned about the final estimate. “The slowdown has been led by manufacturing, but shows increasing signs of spreading to services. The survey data have been consistent with falling manufacturing output since February,” he explained before concluding that “Trade wars remained top of the list of concerns among manufacturers, alongside signs of slower sales and weaker economic growth both at home and in key export markets.”

Germany and France PMIs Consistent with Anaemic Growth

The Eurozone Composite PMI stood at 51.6 in May, barely up from 51.5 in April. While the Services and the Manufacturing PMIs fell to 4-month and 2-month lows, the Manufacturing PMI Output index rose to a 3-month high. Weak sales motivated companies to hold back labour force expansion plans, leading to the lowest job growth since 2016. Optimism about the future meanwhile slumped to a four-and-a-half year low and inflationary pressures moderated as competition limited sellers’ pricing power.”

“The eurozone economy remained becalmed in the doldrums in May, adding to signs that only modest growth will be achieved in the second quarter. At current levels the PMI is so far indicating GDP growth of only 0.2% in the second quarter,” commented Williamson. The report also noted a deterioration in expectations. “Worries reflected concerns over lower economic growth forecasts, signs of weaker sales and rising geopolitical uncertainty, with escalating trade wars and auto sector woes commonly cited as specific causes for concern,” Williamson added. “Germany is on course for a 0.2% expansion of GDP in the second quarter while the survey for data France points to a meagre 0.1% gain. However, the bigger concern is for the rest of the region, which collectively saw growth falter amid the first fall in orders for almost six years.”

The German Composite PMI was estimated at a 3-month high. This rise was mostly driven by the Manufacturing output index, which itself was estimated at a 3-month high. The Services PMI Activity index and the Manufacturing PMI were measured at 4/month and 2-month lows.

“At 52.4, the headline Germany PMI remains in modest growth territory in May, indicating that the economy is course to see sustained expansion in Q2 following the rebound of GDP in the opening three months of the year,” said Phil Smith, Principal Economist at IHS Markit. “May data for the service sector were slightly less punchy than in recent months, with business activity, new orders and employment all rising more slowly. Thankfully, the manufacturing indicators for output, orders book and export sales have all picked up further from their low points in the first quarter, albeit remaining among the weakest since 2012. However, goods producers’ increased efforts to streamline workforces means that factory job numbers are now falling at the steepest rate in over six years.”

The French Composite PMI for may was measured at a 6-month high. The rise was driven by increases across all three of the contributors to the headline figure. “Modest growth was driven by the service sector, which posted its quickest expansion since last November. Meanwhile, manufacturers saw another fall in production, although the rate of decline eased and was only fractional overall,” according to the press release. While the Services PMI Activity Index and the Manufacturing Output Index were measured at 51.7 and 50.6, levels which suggest expansions, the Manufacturing PMI was measured at 49.8, a level consistent with a contraction.

“The latest PMI results pointed to an improved performance by the French private sector. Although growth remained subdued compared to 2017 and 2018, the fastest rise in business activity for six months comes as welcome news, following a period of weakness since disruptions began last November,” commented Eliot Kerr, Economist at IHS Markit. “Moreover, a further recovery in new orders and business expectations point to a sustained rise in activity. Such growth would help to drive improving labour market conditions, and further build upon the recently achieved 10-year low for unemployment.”

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Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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