Manufacturing output contracted for the first time since October 2012 (Mint file)
Manufacturing output contracted for the first time since October 2012 (Mint file)

Stagnating global growth dashes hopes of quick economic turnaround

  • The JP Morgan Global Composite index showed that business activity stayed lackluster in June, as growth stayed at a three-year low in May
  • The slight uplift in the pace of increase in services sector activity was offset by the first contraction in manufacturing output since October 2012

Mumbai: The pace of global economic activity is stagnating, painting a grim picture of what lies ahead in terms of recovery. The JP Morgan Global Composite index showed that business activity stayed lackluster in June, with growth stagnant at May’s three-year low.

Although the headline index remained above the crucial 50 mark, it stood at 51.2 in June, unchanged from May. A reading above 50 indicates expansion while below that threshold indicates contraction.

The slight uptick in the pace of increase in service sector activity was offset by the first contraction in manufacturing output since October 2012. As a result, business optimism suffered, sinking to a fresh series-record low.

The culprits remain the same. The ongoing downturn in international trade flows continued to weigh on the trend for total new business. New export orders for goods and services fell for the seventh straight month. As a result, the rate of increase in global all-industry new orders remained lacklustre in June.

Commenting on the survey, Olya Borichevska, from global economic research at JP Morgan, said “The rate of global economic expansion steadied at a low and below-trend pace at the end of the second quarter. Although service sector growth remains subdued overall, it is manufacturing that is showing the greater degree of weakness. Market conditions and international trade flows will need to stage a revival if the current lacklustre picture is to brighten up in the second half of the year."

Most certainly, how soon the global trade scenario improves depends on the US and China. For now, both countries have agreed on a trade deal at the recent G-20 summit.

But as analysts at ICICI Bank’s research arm pointed out, though a temporary ceasefire will help in boosting risk sentiment in the near term, a ‘trade ceasefire’ should not be confused for a ‘trade deal’. “We do not see the G-20 as a turning point in terms of ‘global trade policy’ and wait to see how the new round of negotiations between US and Chinese policymakers develops," the brokerage said in a report on 1 July.

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