Global growth is back on track

In EM ex-China, emerging European countries were following the retreating trend in Western Europe, while EM Asia and Latin America were largely unchanged on average from May. The global normalized gap between new orders and inventories had a stronger improvement than the headline series to 0.09 from -0.23, as new orders rose in conjunction with the decline in finished goods inventories.

In the US, the headline ISM manufacturing kept its high level from May of 55.3 (versus 55.4), and new orders improved to 58.9 from 56.9, more than offsetting the decline in production. The Markit manufacturing PMI was slightly below the ‘flash’ reading, at 57.3, but still pointed at improved activity levels – the highest pace of expansion in four years, and the Q2 average of 56.4 was the strongest since Q2 2010.

Both production and new orders components posted increases to above-60 levels of expansion. All in all, our US confidence series showed a notable improvement, in line with our expectation for a rebound in activity in Q2 and H2 this year.

In the euro area, the final June manufacturing PMIs were revised down slightly, to 51.8 (versus a final reading of 52.2 in May), reaching a 7-month low. Declines in headline manufacturing activity took place in Germany (to 52.0 from 52.3), France (where contraction deepened, to 48.2 from 49.6), Italy (to 52.6 from 53.2) and the Netherlands (to 52.3 from 53.6).

The exception was Spain, where output has shown improvement to an outstanding level of 54.6 (from 52.9), the highest in almost seven years. New orders declined similarly to the headline, as did the gap between new orders and inventories, suggesting that demand might not recover much further in the upcoming months.

In the UK, manufacturing PMI expanded above-expectations in June, at a pace of 57.5 (up from 57.0 in May). This brings the Q2 average to 57.3, more than a point stronger than Q1 average and the highest quarterly expansion since Q1 2011. For details, see UK manufacturing PMI expands strongly in Q2.

In Japan, the final manufacturing PMI was revised up to 51.5 (from 51.1 in the ‘flash’, and up from 49.9 in May). Despite below-50 readings in April and May, the Q2 average now points to modest expansion (at 50.3), in line with our view that the negative reaction to the VAT tax hike will prove temporary. Forward-looking components improved more significantly – new orders rose to 52.3 (from 49.6), and the gap between orders and inventories soared to 3.1 from previous -1.9 – supporting our view that more significant improvement in growth should take place starting in Q3.

In China, the NBS manufacturing PMI rose to 51.0 from 50.8 in June, driven strongly by new orders, which improved to a 9-month high of 52.8. The Markit PMI showed an even stronger improvement to 50.7 (from 49.4- on both SA and SAWD basis), albeit a notch below the ‘flash’ reading.

The average of the two new orders component series of Markit and NBS, on a SAWD basis, improved to 53.1 from 51.3 – the strongest level of this series since May 2011. All in all, the increase in the pace of expansion is evidence for the series of government measures taking effect, and is in line with a pickup in growth in Q2 relative to Q1.

In EM ex-China, emerging Europe was likely affected by the decline in the pace of recovery in the euro area; the average manufacturing PMI for the region dropped to 49.6 from 50.0 in May, driven by slower activity levels across the board, in addition to yet below-50 PMI in Russia (albeit slightly improved from May).

In Asia, India’s headline PMI was nearly unchanged from May at 51.5, with overall Q2 activity growth marginally slower than in Q1. Korea showed a faster pace of contraction in activity this month, while activity levels improved in Indonesia and Taiwan.

In Latin America, Mexico kept a constant pace of output expansion throughout Q2 of 51.8, slightly lower than in Q1, while Brazil ended three months of contraction in manufacturing activity, at 48.7 in June, down from 48.8 and 49.3 in May and April, respectively.

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