The global economy completed Q1 with another solid showing in March. The global composite PMI, covering both manufacturing and services, rose marginally from 53.1 to 53.5 last month and spent the first quarter close to the long-term average. The Eurozone’s modest recovery continues with the region’s four largest economies – Germany, France, Italy and Spain – all posting composite readings above 50. But a lot more is needed to put a dent in the region’s considerable economic problems.
The US is getting over the cold winter with new business picking up in both services and manufacturing. In the UK, the exceptionally strong pace of job creation may have further left to run with the employment component in the services PMI remaining above the long-run average. Elsewhere, Japan’s economic recovery continued into March although it will be interesting to see how this month’s VAT hike impacts sentiment next month. And more generally, the ingredients for a sustained recovery in Japan remain absent.
The disappointing news, as has become the norm, is to be found in emerging markets. The heatmap of manufacturing activity shows three straight months of solid red against China. The economy continued to slow in Q1 with a 7.4 percent year on year rise after a 7.7 percent gain in Q4 2013. The ongoing weakness in the PMIs suggests a further slowdown is yet to come. We continue to believe this is a necessary and inevitable outcome of China’s transition to a less credit intensive form of growth, which is only just underway.