The Science of Finance

Monthly economic overview

6 June 2013: Global G economy picks up speed in May, but Q2 Q as a whole still looks weak

Monthly economic overview

Global growth strengthens, but goods production remains especially weak

Having hit a sixsix-month low in April, global economic growth picked up again in May, according to PMI data. However, the Global PMI merely rose from 51 51.9 9 to 53 53.1, 1 thereby still signalling only a modest pace of expansion of around 2% per annum above that seen late last year but well below per per-crisis rates. Global manufacturing continued to more or less stagnate, while services saw faster, though still subdued, growth.

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 GDP annual % change 7% 5% 3%

Global goods and services

PMI Output / Business Activity Index 65 60 55 50 1% 45 -1% 1% -3% -5% 5% 40 35 30

Global PMI Output Index Global GDP

Global manufacturing Global services

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

Monthly economic overview

Advanced world buoyed by growth acceleration in Japan and the UK

PMI Output Index (manufacturing and services) 65 60 55 50 45 40 35 30 25 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 UK US Japan Eurozone

Among the major developed countries, the US again saw the strongest pace of expansion in May as has been the case over much of the past three years. The gap has narrowed significantly with the UK and Japan, however, both of which saw strong upturns in May. The UK PMI showed the fastest pace of expansion since the start of 2012, while growth in Japan was the best since data were first collected in midmid2007 Th 2007. The eurozone, i in contrast, t t contracted t t d once again, i although the rate of decline moderated for a second successive month to raise hopes that the regions region s downturn is easing.

Developed world PMIs

Monthly economic overview

Emerging markets remain mired in sluggish growth

PMI Output Index (manufacturing and services) 65

The PMIs also indicated that emerging economies are collectively undergoing one of the weakest growth patches

60

seen since the 20082008-09 crisis.

55 50

Only very modest rates of expansion were seen in China,

45

Russia, Brazil and India, and all four are seeing weaker
40

growth than at the start of the year. Moreover, the rates of

35 30 25 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 China Brazil Russia India

growth slipped closer towards stagnation in May May, with the exception of India. Russias growth rate was the weakest for just under three years, years the expansion in China hit a sevensevenmonth low, and Brazil saw growth barely exceed the low seen back in March.

Emerging market PMIs

Monthly economic overview

North America drives manufacturing expansion

Looking at manufacturing, the strongest growth rates were seen in North America, with the PMIs for the US, Canada and Mexico all coming in above the 50 50.0 0 no no-change mark. mark The UK was the only European country besides Switzerland and the Czech Republic to see growth, though downturns eased in all euro countries. In Asia, robust growth in Japan contrasted with a renewed downturn in China and a particularly steep downturn in Taiwan.
M Manufacturing f t i PMI 54 April 52 May

50

48

46

44 France Taiwan Poland Spain Austria Japan a Indonesia and Switzerla Canada India Greece Italy nds Netherlan Vietnam China Russia South Afr rica Brazil Turkey UK Mexico US Czech Re ep. y Germany WORLD S Korea

Monthly economic overview

Record growth seen in Japan as Abenomics boosts manufacturing and services

Of the major economies, one of the biggest changes was seen in Japan, where the pace of expansion rose to the fastest seen in the near sixsix-year PMI history history. Q2 GDP growth may even exceed the 0 0.9% 9% rise seen in Q1 Q1. The countrys country s manufacturing exporters bucked the wider trend of falling exports seen in the rest of Asia, enjoying the benefits of the yens recent 20% depreciation, though much stronger growth in services suggests that the domestic economy is also benefitting from recent policy initiatives to boost growth growth.

Japan PMI and economic growth

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

Asian exports
Manufacturing PMI New Export Orders Index 60

50

40

30 Japan Asia (ex. Japan) 20 Jan-07 Jan-09 Jan-11 Jan-13

Monthly economic overview

UK economy sees growth strengthening in second quarter

The UK PMIs signalled the fastest growth for over a year in May; led by the service sector. However, manufacturing and construction also expanded expanded, signalling a welcome return of broad broad-based growth. growth The PMIs suggest economic growth will pick up from 0.3% in Q1 to 0.5% in Q2. The surprisingly strong upturn in the PMIs pushes the surveys out of the range normally consistent with policy stimulus. The Bank of England held policy unchanged in response to the better data.

UK PMI and economic growth

Markit/CIPS UK Composite PMI 65 60 1% 55 50 45 40 -2% 35 30 Jan-06 Jan-08 Jan-10 Jan-12 GDP PMI -3% 0% GDP quarterly % change 2%

Bank of England decisions

Markit/CIPS UK All-Sector PMI 65 60 55 50 45 40 35 30 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 BoE monetary policy PMI Quantitative easing BoE monthly policy change 75 50 25 0 -25 -50 -75 -100 -125 -150

-1%

Monthly economic overview

Eurozone set for further GDP fall in Q2, but rate of decline not worsening
The ECBs pledge to be ready to act if the economic data flow deteriorated seems redundant after PMI data showed the regions region s downturn easing for a second successive month in May May. The euro area still looks to be on course to contract for a seventh quarter running in Q2, with GDP down by a similar extent to the 0.2% fall seen in Q1, but the downturn is at least not getting worse. Germany showed signs of stabilising and Spain saw an especially sharp easing in its rate of decline.

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 Jan-12 GDP PMI GDP quarterly % change 1 5% 1.5% 1.0% 0.5% 0 0% 0.0% -0.5%

Output by country
PMI Output Index (manufacturing and services) 65 60 55 50 45

-1.0% -1.5% 1.5% -2.0% -2.5% -3.0% 40 35 30 25 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Germany Italy Spain France

Monthly economic overview

US GDP growth looks to have slowed in Q2, led by manufacturing slowdown

The all all-sector PMI for the US rose from Aprils tenten-month low, but the upturn was limited to the nonnon-manufacturing sector (based on the ISM survey) survey). Manufacturing output growth growth, on the other hand hand, slowed for a third month running to the weakest since last October. The data therefore suggest that US GDP growth will have slowed in Q2 compared to the 0.6% quarterquarter -on on-quarter expansion seen in Q1, but probably not enough to stop the Fed considering when to start easing back on policy stimulus stimulus.

US PMI and economic growth

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

US manufacturing
US PMI Output Index Manufacturing production, 3m/3m % change 65 60 55 50 45 40 35 30 25 Jan-07 Jan-09 Jan-11 Jan-13 Markit PMI Manufacturing output -8% -6% 0% -2% -4% 4% 2%

Monthly economic overview

Chinese economic growth slips to seven-month low; forecasts revised down

While all all-sector PMIs rose in Japan, the UK, the US and the eurozone in May, albeit with the latter merely indicating a slower rate of decline, decline the PMI for China fell to its weakest since last October October. Manufacturing saw the weakest increase in output in in the current sevenseven-month growth spell, while services saw an ongoing sluggish expansion. The data added to gloomy views from the IMF and OECD, who both revised down their 2013 growth forecasts for China to 7.75% and 7.8% respectively.

China PMI and economic growth

HSBC China Composite PMI 65 GDP PMI GDP annual % change 16% 14% 12% 55 10% 8% 50 6% 4% 45 2% 40 Jan-06 Jan-08 Jan-10 Jan-12 0%

Chinese output by sector

PMI Output / Business Activity Index 65 60 55 50 45 40 Manufacturing Services 35 Jan-06 Jan-08 Jan-10 Jan-12

60

10

Monthly economic overview

Equities fall on worries over US stimulus and weak PMIs

Global equities pulled back from recent highs, reflecting fears that the US Fed could start tapering its stimulus due to fa falli lling ng unemployment just as economic growth is faltering elsewhere in the world world, notably China China. The first big drop in equities occurred after weak flash China PMI data. However, despite the fall, comparisons suggest the current pace of economic growth remains weaker than equity prices justify.

Worldwide equity prices

FTSE All World Index v 12m ave JPMorgan Global Composite PMI 60 40 20 0 -20 -40 -60 -80 -100 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Global share price momentum Global PMI 40 35 55 50 65 60

Unemployment rates
Unemployment rate % 14 12 10 8 6 45 4 2 0 Jan-90 Jan-94 Jan-98 Jan-02 Jan-06 Jan-10 US Japan Eurozone UK

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