John Kemp

LONDON, (Reuters) – Global manufacturing growth is slowing as problems in supply chains, rising energy costs, and conflict between Russia, Ukraine, take their toll.

After the pandemic recovery, slower growth in production output and freight transportation is expected. This was because consumer spending has shifted from merchandise to services.

Quarantines and other restrictions on social-distancing are being lifted. As a result, some of the goods demand is being diverted to services, such as tourism, transport and hospitality.

Policymakers will quietly welcome slower manufacturing and freight growth as it has the potential to reduce supply chain bottlenecks, and lower energy prices and inflation.

However, as it loses momentum the sector will be more susceptible to policy mistakes or shocks that could lead to a slowdown in mid-cycle into a recession.

There are many possible outcomes in terms of growth and inflation, but there is little room for policy mistakes.

FADING MOMENTUM

U.S. companies saw a broad expansion of business activity in the last month, however there is less reporting than that for 2021.

The Institute for Supply Management’s purchasing managers’ index slipped to 55.4 in April from 57.1 in March and 60.6 at the same point last year.

The composite indicator is in the 69th percentile for all months since 1980 down from the 96th percentile a year ago (https://tmsnrt.rs/39zSCZN).

From the 93rd percentile a year back, the new orders component, which represents the forward-looking part of the index has fallen to the 35th percentile.

A relative weakening of new business could signal a slowdown in manufacturing growth for the six months ahead.

In the eurozone, manufacturers also reported a slower expansion last month, with the purchasing managers’ index down to 55.5 in April from 56.5 in March and 62.9 last year.

The region’s purchasing index has dipped to the 74th percentile for all months since 2006 compared with the 99th percentile a year ago.

European producers will likely experience a deeper downturn in the coming months as sanctions against Russia’s coal, oil, and gas increase input costs and reduce consumer and business spending.

The manufacturing sector in North America and Europe is expanding. However, momentum is slowing and household spending is expected to shrink as higher inflation and lower interest rates force it down.

CHINA IN TROUBLE

China has seen manufacturers already suffer more than any other region due to increasing coronavirus infections and lockdowns.

China’s manufacturing index slipped to 47.4 in April from 49.5 in March and 51.1 in April 2021, according to the country’s National Bureau of Statistics.

Since February 2020 when the pandemic began, the index is at its lowest level. It was also lower than January 2009 when it was in the midst a recession due to the financial crisis.

China’s manufacturers already appear to be on the brink of recession as lockdowns close factories and disrupt supply chains.

The top message of policymakers and state media over the past week has been to keep the epidemic under control while reviving the economy, acknowledging the seriousness of the slowdown.

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– Western economies are at the edge of recession due to Russia sanctions (Reuters March 8)

John Kemp is a Reuters Market Analyst. His views do not reflect those of Reuters.