Global economic growth picked up in February as Omicron wave wanes, outlook darkens


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The pace of global economic growth picked up in February after dropping to its lowest level in a year and a half in January, bringing encouraging news of a moderate impact from the COVID-19 Omicron wave. Although pricing pressures remained elevated, linked to continued supply constraints and rising energy prices, business optimism rose to the highest level in a decade as companies considered better times as the disruptions of the pandemic continue to fade.

However, Russia’s invasion of Ukraine has since altered the economic landscape, posing downside risks to economic growth – particularly in Europe – and increasing inflationary pressures via rising energy prices and other raw materials, while disrupting supply chains.

Global PMI and GDP

Global PMI and GDP (IHS Markit and JPMorgan)

Global economy recovers after Omicron hit

The global economy expanded for a twentieth consecutive month in February, according to the JPMorgan Global PMI™ (compiled by IHS Markit, now part of S&P Global), with the rate of expansion accelerating from the low of January 18 months as the COVID-19 Omicron wave showed signs of abating. The PMI fell from 51.1 to 53.4, a level broadly indicative of global GDP growing at an annualized rate of just over 3% in February after growing 2% in January.

Global GDP growth in the first quarter of 2022 therefore looks slower so far at 2.6% than the 3.6% expansion reported in the second quarter of 2021.

Services lead the rebound

Growth in manufacturing and services improved in February, with the latter registering the strongest acceleration and reflecting the easing of pandemic containment measures globally after two months of tightening.

Global PMI and Covid-19 containment

Global PMI and Covid-19 containment (IHS Markit and JPMorgan)

*IHS Markit’s COVID-19 Containment Index is based on a set of measures implemented by governments to control the spread of the pandemic, such as non-essential business closures, school closures and restrictions travel and mobility related to social distancing policies. As these measures tighten, the index rises towards 100 and an easing of the measures causes the index to fall towards zero.

Services providers actually comfortably topped the detailed February sector growth rankings, led by other financial services. However, providers of consumer-facing services such as tourism and leisure remained subdued amid the ongoing pandemic, although they returned to growth after being hit hard by the Omicron wave in January. Transportation also remained particularly sluggish, one of only two sectors to see a decline in output (the other being food production). Ongoing supply chain bottlenecks and labor shortages also continued to limit growth in many manufacturing sectors, including automotive and machinery and equipment.

Global PMI Output Ranking

Global PMI Output Ranking (IHS Markit and JPMorgan)

Growth rates in developed countries diverge

The UK leads the major developed economies, with business activity growth picking up in February as COVID-19 restrictions were almost entirely lifted. A less complete easing of containment measures in the Eurozone and the United States also led to faster growth after the Omicron-related slowdowns in January. While UK growth hit its highest level since last June, with the composite PMI rising to 59.9 from 54.2 in January, US growth rebounded to the highest since December – an output index of 55, 9 compared to 51.1 in January – while the eurozone has seen the fastest growth since last year. September, with the PMI falling from 52.3 in January to 55.5.

By contrast, Japan’s PMI fell from 49.9 to 45.8, indicating the biggest decline since last August as lockdowns were further tightened.

Production in the largest developed economies

Production in the largest developed economies (IHS Markit, CIPS, at Jibun Bank)

Brazil and India dominate emerging markets, while China and Russia are lagging behind

Turning to major emerging markets, India and Brazil recorded similar rates of expansion, with growth accelerating in both to culminate in composite PMI readings of 53.5. However, while India’s expansion was led by stronger manufacturing, helping to offset continued modest growth in services, the opposite was evident in Brazil, where a fifth monthly decline in manufacturing was offset by the resumption of growth in services.

China, pursuing a “zero-COVID” policy, was broadly stagnant for a second straight month amid heightened health restrictions, with its composite PMI holding steady at 50.1 due to stagnant production of goods and services. Russia, its PMI at 50.8, was also more or less at a standstill, as the resumption of growth in the services sector was offset by a further decline in manufacturing.

Production in the largest emerging markets

Production in the largest emerging markets (IHS Markit, Caixin)

Inflationary pressures persist

Meanwhile, supply shortages have exerted sustained, albeit slightly abated, upward pressure on raw material costs. However, combined with upward pressure on wages as companies sought to attract and retain workers and skyrocketing energy bills, rising commodity prices have led to a further upswing in global inflation. factory selling prices. Prices for goods leaving the factory posted the fourth largest monthly increase recorded globally since comparable data became available in 2009.

Prices charged for services have meanwhile increased at a rate unprecedented in the history of PMI surveys, as rising costs of materials, energy and labor are increasingly passed on to customers.

Global input costs and selling prices

Global input costs and selling prices (IHS Markit, JPMorgan)

New survey highs were therefore seen for retail price inflation rates in the UK and the Eurozone, with the US rate being the second highest on record.

PMI prices charged for key savings

PMI prices charged for key savings (IHS Markit, CIPS, Caixin, at Jibun Bank)

By contrast, the rate of PMI retail price inflation cooled in Japan, settling only at a very modest level compared to those observed in the United States and Europe, and remained subdued in China. , highlighting how supply-side inflation has remained a very present phenomenon. of the western world in February.

However, measured globally, the overall signal from the PMI was for consumer price inflation to continue at a very high level in the coming months, as higher prices for goods and services are expected to affect households. Recent spikes in energy prices suggest further upward pressure on prices is likely.

PMI prices charged and global inflation

PMI prices charged and global inflation (S&P Global, JPMorgan)

Outlook improved to decade high before Ukraine invasion

In addition to tracking the hard data above, the PMI survey also asks PMI respondents to share their expectations for the coming year. The forward-looking series showed business optimism at one of the highest levels on record since comparable industry and services data first became available globally a decade ago. The survey’s optimism index in the services sector, which has a longer history, hit an 11-year high, while sentiment in the manufacturing sector hit its highest level since last April, reaching a level rarely exceeded in the history of the survey.

Companies in both sectors reported that confidence had improved mainly due to growing hopes of a possible end to the COVID-19 containment measures, in turn supported by signs of the Omicron wave having only had moderate economic impact on demand and supply chains.

However, the monthly PMI data for February was collected before the invasion of Ukraine, which likely severely affected growth expectations while pushing price expectations even higher. March PMI flash data, released on March 24 and covering trading conditions in the US, Eurozone, UK, Japan and Australia, will reveal the initial impact of the war.

Global Trade Expectations

Global Trade Expectations (IHS Markit, JPMorgan)

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.


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