The Science of Finance

Monthly economic overview

8 July 2013: Global economic growth slows at end of Q2 2013

Monthly economic overview

Global economic growth at near post-crisis low

The pace of global economic growth slowed in June to the second-weakest since the world pulled out of the 2008-09

recession, according to PMI data. The Global PMI fell from 52.9 in May to 51.4, its lowest since July 2009, with the sole
exception of a low seen in June of last year. The developed world saw the weakest growth since last October, while emerging market growth was the lowest for over four years.

Global PMI and economic growth

JPMorgan Global Composite PMI 65 60 55 50 45 40 35 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Global PMI Output Index Global GDP GDP annual % change 7% 5% 3% 1%

Developed vs. emerging markets

PMI Output / Business Activity Index 65 60

55
50 45

-1% 40 -3% -5% 35 30 Jan-06 Development markets Emerging markets Jan-08 Jan-10 Jan-12

Monthly economic overview

UK leads advanced world growth as pace of US expansion hits near four-year low
PMI Output Index (manufacturing and services) 65 60

There were mixed trends among the worlds major developed countries, with PMIs rising in the UK and eurozone, but falling in the US and Japan.

The UK saw one of the strongest rates of growth since early 2010, with
55

growth hitting its fastest for just over two years.

50 45 40 35 30 25 Jan-08 UK US Japan Eurozone Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

In contrast, growth in the US slowed to the weakest since the recovery began almost four years ago. Growth also dipped in Japan, albeit down from Mays record and remained historically high.

The recession in the eurozone meanwhile continued, though the rate of decline was the mildest for 15 months.

Developed world PMIs

Monthly economic overview

Emerging markets see slowest growth since April 2009

PMI Output Index (manufacturing and services) 65

Signs of weakness persisted in the emerging markets in June, which collectively signalled the slowest growth since April 2009.

60 55 50 45 40 35 30 25 Jan-08 China

All four BRIC economies saw far weaker growth than earlier in the year, as a combination of sluggish domestic and export demand hit both services and manufacturing.

Chinas composite PMI slipped below the 50 no-change level, down to its lowest since January 2012. In India, on-going near stagnation rounded off the worst quarter since Q1 2009. Meanwhile, growth also more or less petered out in Brazil and Russia, the latter being notable in seeing the slowest pace of expansion for almost three years.

Brazil
Russia India Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Emerging market PMIs

Monthly economic overview

UK, Japan and North America lead manufacturing ranking, China falls into bottom three
The top of the global manufacturing PMI league table was dominated by developed countries, led by the UK, with Canada,

Japan and the US close behind. The lower end was filled by eurozone and Asian economies. China fell in to the bottom
three of the 25 countries monitored by the surveys, its rate of decline exceeded only by that of Greece and Vietnam. South Korea and Taiwan also saw modest downturns.
Manufacturing PMI
54 June 52 May

50

48

46

44 Greece Vietnam China Austria France Germany Netherlands Italy Poland S Korea Taiwan Spain India Ireland Brazil WORLD Czech Rep. Indonesia Turkey Mexico South Africa Russia US Japan Canada UK

Monthly economic overview

Non-bank financial sector leads global growth rankings

PMI Output Index (manufacturing and services)
Other Financials Real Estate Pharmaceuticals & Biotech. Commercial & Prof. Services Insurance Construction Materials Chemicals Transportation Food Machinery & Equipment Technology Equipment Automobiles & Parts Tourism & Recreation Healthcare Services Household & Personal Use Media Forestry & Paper Products Software & Services Telecommuication Services Banks General Industrials Beverages Metals & Mining

The chart on the left ranks sectors by growth of global output in Q2, based on average PMI readings from the worldwide surveys.

Other financials the non-banking sector have seen the strongest rate of expansion of business activity in the second quarter by some margin, contrasting sharply with the near-stagnation seen for banks.

Five of the top six sectors were all service sectors, the exception being pharmaceuticals & biotechnology.

Q2 average 46 48 50 52 54 56 58

Metals & mining and general industrials all saw falling output, reflecting current manufacturing weakness, especially in Asia. The only other sector to see a drop in production was drink manufacturing.

Global Sector PMIs

Monthly economic overview

US job creation beats expectations, but economic growth slides to post-crisis low
A tapering of the Feds massive quantitative easing program is looking increasingly likely to start in the next few months

after much better than expected job creation in Q2 (during which payrolls rose 589k). However, it is not all positive news.
The unemployment rate the Feds main target for policy held steady at 7.6%, and the composite PMI fell to its lowest level since July 2009, suggesting that the four-year old recovery lost considerable momentum during Q2.

US PMI and economic growth

US Composite PMI 70 65 60 55 50 45 40 35 30 25 Jan-06 Jan-08 Jan-10 GDP PMI -3% Jan-12 -2% 0% 1% GDP quarterly % change 2%

US labour market
Unemployment rate Non-farm payrolls monthly change (000s)

11
10 9 8

600
400 200 0 -200

-1%

7 -400 6 5 4 Jan-08 Non-farm payrolls Unemployment Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 -800 -1000 -600

Monthly economic overview

UK economy growth spurt reduces likelihood of further stimulus

The UK PMIs signalled the fastest growth for just over two years in June, reducing the chance of further stimulus by the

Bank of England. The surveys suggest economic growth picked up to at least 0.5% in Q2. New orders and employment
showed the largest gains for almost six years, boding well for the upturn to be sustained into Q3. Strong services growth was accompanied by manufacturing growth reaching a two-year high and construction also eking out modest growth.

UK PMI and economic growth

Markit/CIPS UK Composite PMI 65 60 55 0% 50 -1% 45 40 GDP PMI Jan-08 Jan-10 Jan-12 -2% GDP quarterly % change 2%

Bank of England decisions

Markit/CIPS UK All-Sector PMI 65 60 1% BoE monthly policy change 75 50 25

55
50 45 40 35

0 -25 -50 -75 BoE monetary policy PMI Quantitative easing -100 -125 -150

35 Jan-06

-3%

30 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

Monthly economic overview

End of eurozone recession in sight as downturns ease in regions periphery

The Eurozone PMI rose to a 15-month high in June, yet remained below the 50 no-change level to indicate that the

regions recession extended into a record seventh quarter. GDP is likely to have fallen in Q2 at a similar rate to the 0.2%
drop seen in Q1. However, there was encouraging news that the Spanish economy contracted at the slowest rate for two years, while Italy saw activity fall at the slowest pace since September 2011. Frances downturn likewise moderated.

Eurozone PMI and economic growth

Markit Eurozone Composite PMI 65 60 55 50 45 40 35 30 25 20 Jan-06 Jan-08 Jan-10 GDP PMI Jan-12 GDP quarterly % change 1.5% 1.0% 0.5% 0.0%

Output by country
PMI Output Index (manufacturing and services) 65 60 55

50
-0.5% -1.0% -1.5% -2.0% -2.5% -3.0% 45 40

35
30 25 Jan-09

Germany Italy Spain France Jan-10 Jan-11 Jan-12 Jan-13

Monthly economic overview

Japan sees strongest quarter of growth since 2007, despite slight slowing in June
Despite the composite PMI for Japan dipping from Mays all-time high in June, Q2 saw the highest average PMI reading

since the series began in 2007. The improvement in the index in Q2 is roughly consistent with Japanese GDP rising at an
annualised rate of around 6.0% (1.5% q/q), up from 4.1% (1.0% q/q) in Q1. Japanese firms have seen the strongest growth of demand for goods and services in the history of the PMI survey in recent months.

Japan PMI and economic growth

Markit Japan Composite PMI 65 60 2% 55 50 45 40 35 -4% 30 25 Jan-06 GDP PMI -6% Jan-08 Jan-10 Jan-12 0% GDP quarterly % change 4%

Output by sector
PMI Output / Business Activity Index 65 60

55
50 45 40

-2%

35

30
25 20 15 Jan-06 Jan-08 Jan-10 Manufacturing Services Jan-12

10

Monthly economic overview

Chinas growth slows further amid steep deterioration in order book indicators
In China, the composite PMI slipped below the no-change level of 50 for the first time since last August. The data suggest

that Chinas GDP growth rate will have slipped further from the already-disappointing 7.7% annual pace seen in Q1. New
orders dropped at one of the fastest rates since March 2009, caused by the joint-steepest fall in manufacturing export orders for over four years and the weakest increase in demand for services since November 2008.

China PMI and economic growth

HSBC China Composite PMI
65 GDP PMI

New orders by sector

PMI New Export Orders / New Business Index 65 60 55 50 45 40 35 30 25 Jan-06 Manufacturing New Export Orders Index Services New Business Index Jan-08 Jan-10 Jan-12 16% 14% 12%

GDP annual % change

60

55

10% 8%

50

6% 4%

45

2% 40 Jan-06 0%
Jan-08 Jan-10 Jan-12

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