The green shoots theory may have been bashed up a lot in recent weeks, but for India and China, the data coming from the purchasing managers’ indices for June don’t support the naysayers.
The Markit Purchasing Managers’ Index (PMI) for manufacturing in India was at 55.3 in June, slightly lower than May’s reading of 55.7. A reading above 50 signifies expansion. It’s worth noting, though, that the index measures changes from the preceding month, which means that the expansion in output in June occurred over the level in May. Simply put, manufacturing is getting better. The New Orders Index at 58.1 indicates that the recovery will be sustained.
Another sign of a recovery is seen from the rise in factory gate prices for the first time in the past eight months. Pricing power, too, is returning as demand improves.
Moreover, India’s PMI reading of 55.3 in June is the world’s highest. China, the other country that has been showing an expansion, has two PMI measures. While the CLSA China manufacturing PMI rose to 51.8 in June from 51.2 in the previous month, the official PMI for June rose to 53.2 from 53.1 in May, logging above the 50 mark for the fourth successive month. That indicates the rate of expansion in manufacturing in June was the fastest in India.
Besides India and China, Sweden also showed an expansion in manufacturing for the first time in 12 months, with its PMI rising to 50.5 in June from 43.7 in May. But for most other economies, the manufacturing sector continued to contract, although the rate of contraction has been slowing continuously.
For example, the Eurozone Manufacturing PMI for June rose to 42.6 from 40.7 in May, its highest since September, although well below the 50 mark. The Nomura/JMMA PMI for Japan rose to 48.2 in June, from 46.6 in the previous month. In the UK, the index rose to 47 from 45.4 in May. In Russia, PMI advanced to 47.3 in June from 45.3 in the previous month.
It’s easy to see why the World Bank, the Organisation for Economic Co-operation and Development and the Bank for International Settlements are so pessimistic about the world economy. The PMI data show that manufacturing in most parts of the world, and especially the advanced economies, continued to contract last month.
What’s more, we also need to see the services PMI data before we get an idea of how the global economy performed in June. That’s because services constitute the major chunk of the economy in the advanced countries. Also, recall that in May, global services PMI, at 43.2, was lower than the April number and dragged down the composite global PMI for both manufacturing and services.
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