The downturn in PMI manufacturing new orders continues: after this week's flash PMIs we estimate the weighted G5 average will be down another 0.7 points in September to 46.5, which in turn is down from 51 six months ago. That's raised fears that a more significant decline in Global Industrial production lies just around the corner.
We're sceptical for three reasons.
1) Real disposable income is growing rather than slumping in most major regions, and the soft patch in manufacturing is not confirmed by data from the service sector, nor by higher frequency data such as net earnings revisions and industrial metal prices, which are up slightly in aggregate over the period that the mPMIs have been falling. And copper prices are actually up more than 10% in the past couple of months.
2) According to our Weekly US GDP tracker, underlying GDP growth (real Domestic Final Purchases) accelerated in Q3: from around 2 to around 3% per annum.
3) Most major central banks are now easing policy - and with clear intent to support activity going forward.
In level terms Global IP has been roughly stagnant for over a year now, and if anything we would expect a slight improvement over the next several months rather than a snowballing downturn. The big caveat relates to the potential impact of a second term for Trump: whether that would lead to a rapidly escalating global tariff war isn't yet clear, and in any case is probably a risk for later in 2025 than for the the immediate future. But the potential is there.
In short, politics rather than economics feels like the bigger risk to global growth at this point.
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