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  • AIM Team

NAM: Global Manufacturing Economic Update

  1. The World Bank cut its global economic forecast slightly, as it now expects worldwide growth to expand by 3.0 and 2.9 percent in 2018 and 2019, respectively. Both were off 0.1 percent from the estimates made in the June release. For what it is worth, the World Bank predicts 2.9 percent and 2.5 percent in those two years in the United States (which, coincidently, is also my forecast right now.) The World Bank cites trade uncertainties, the strengthening U.S. dollar, increased volatility in financial markets and other challenges as downside risks to growth.

  2. The J.P. Morgan Global Manufacturing PMI™ registered 51.5 in December, down from 52.0 in November and signaling the slowest growth rate since September 2016. The headline index has decelerated since reaching nearly a seven-year high in December 2017 (54.5), even with a modest expansion overall.

  3. Economic growth continued to slip in December in the largest export destinations. In June, all those markets expanded, but the global economy has softened since then. In December, seven economies contracted, up from five in November. Chinaand France both reported declining activity in December for the first time in 19 and 27 months, respectively, joining continuing contractions in Hong KongItaly,MexicoSouth Korea and Taiwan.

  4. Even with some easing over the past few weeks, the dollar has trended higher overall, up 7.9 percent since January 25, 2018, against major currencies, according to the Federal Reserve. The appreciation in the dollar should make it harder for manufacturers to increase international demand, or at a minimum, it is squeezing the bottom line.

  5. Note that updated data on manufactured goods exports for November were not available on schedule due to the partial government shutdown. In the prior release, U.S.-manufactured goods exports have risen 6.6 percent through the first 10 months of 2018 relative to the pace at the same time frame in 2017.

  6. Chinese manufacturing activity slipped into contraction territory in December for the first time since May 2017, according to IHS Markit. The official manufacturing PMI also reflected contracting levels of activity, dropping to the lowest level since July 2016. Along those lines, industrial production and retail sales growth also decelerated in November, with the latter expanding at the slowest pace since May 2003. At the same time, fixed asset investment improved for the third straight month, and the Chinese government continues to take actions to stimulate economic growth.

  7. Similarly, the IHS Markit Eurozone Manufacturing PMI® dropped to the lowest level since February 2016. On a country-by-country basis, the data mostly reflect the softening seen in the headline index. This includes weaker expansions in AustriaGermanyGreeceIreland and Spain, with contracting growth in both France and Italy. It was the first decline in manufacturing activity in France since September 2016, and recent political protests likely played a significant role in this finding. In contrast to those measures, the Netherlands and the United Kingdomboth reported stronger data, with the latter inching up despite Brexit uncertainties.

  8. Trade will figure prominently in 2019, with activity expected on the new U.S.–Mexico–Canada Agreement (USMCA), China trade and tariff talks, Export-Import (Ex-Im) Bank financing, World Trade Organization (WTO) reform and many other trade issues.

  9. Right now, U.S. and Chinese officials are concluding talks in China to address key challenges in the Chinese market and potentially reach a deal to delay further new U.S. tariffs.

  10. The Trump administration is also planning next steps for congressional consideration of the USMCA, although the current partial government shutdown may delay some activity.

  11. The administration is also preparing to launch new negotiations with Japan and the European Union and eventually the United Kingdom.

  12. Manufacturers remain focused on restoring the Ex-Im Bank to full functionality and ensure a robust reauthorization in 2019.

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