The world economy continued to contract at a near-record pace in December, but the rate of contraction has slowed. That’s the message sent out by the JPMorgan Global All-Industry output index, which surveys activity in both manufacturing and services around the world. At 37.5 in December, this index was still deep in negative territory (any reading below 50 signals contraction) but it was slightly higher than the 35.5 reading in November. As the chart shows, the global economy has been contracting since June.
There was a marked improvement in the services sector, with the Global Services Purchasing Managers Index (PMI) at 40 in December, well above the 36.1 level it plummeted to in November. In particular, the US non-manufacturing and Australian service sectors showed good gains during the month, although both of these indices were lower than the global average.
In contrast, the Global Manufacturing PMI continued to contract at an accelerating pace in December, with the index falling to a record low of 33.2 compared with 36.5 in November. Manufacturing data from the US and from Japan were especially weak.
Also See A Slight Upturn In Dec (Graphic)
What about China, the world’s biggest metal basher? Well, the CLSA manufacturing PMI for the country was at 41.2 compared with 40.9 in November. A similar index, compiled by the China Federation of Logistics and Purchasing, also saw an uptick in December. The pace of contraction has slowed a tiny bit. While the contraction in Chinese output continued to accelerate in December, the fall in new orders, particularly new export orders, was not as horrific as it was in November. No such luck for India, where the manufacturing PMI slumped to a new low of 44.4, compared with 45.8 in November.
The news release by JPMorgan and Markit Economics pointed out that “the differential between the indexes tracking manufacturing production and services activity extended to its greatest in the survey’s history. A similar pattern was also observed between the new orders indexes for these sectors.”
India does not have a PMI for the services sector yet, but looking at the global pattern, it’s very likely that in India too the rate of contraction of services will be less than that of the manufacturing sector. And since services account for 60% of India’s economy, any resilience there will provide a big cushion for the downturn.
That said, the fact remains that global growth continues to be extremely negative.The only consolation is that we’re not travelling backwards at quite the same pace as before.
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Graphics by Paras Jain / Mint