Purchasing Manager’s Index in April for a host of countries which are taking preventive measures for instance lockdowns or movement restriction to combat COVID-19 globally are very low. Contracting purchasing manager’s index to the lowest historic level causes their economy behave badly.
As you can see on the graph as shown below, all of these countries were experiencing contraction. Based on these numbers, only China is within touching distance of expansion at 49.4 index. This shows that economy globally is undergoing depressed cycle.
Output – The worst in 20 years
Output of the production shown contraction for most of the counries. This is due to most of the countries introduced movement restriction in the middle of the March and continue to April. Holland suffers the most brunt with output declined at the quickest rate in more than 20 years of data collection.
New Orders – Historic low
Japan suffering the most declines. New export orders fell at a rate as not has seen since the height of the global financial crisis in the early 2009
Employment – Steepest rate since Financial Crisis
US, Germany, France, Australia, Holland, Taiwan and Japan suffered the quickest pace of employment lay off since the last financial crisis in 2008. Whereas South Korea took a heavier tolls among them all since 2005. Unlike to the rest of the world, approximately 95% of the firms reported unchanged workforce numbers in Malaysia.
Supplier Delivery Times – Lengthest lead times in two decades
The incidence of input delivery delays was the greatest seen in over two decades of data collection. UK suffered the worst in 28 years as reflecting logistical issues and border difficulties for overseas goods and delays to shipping and air freight.
Stock of Purchases – Cheaper input cost
Most of input costs dropped, with a number of firms commenting on lower raw material costs for inputs such as oil and metals.
Looking ahead, most firms anticipate output to be lowered than current levels in one year’s time. Firms were pessimistic regarding the outlook as they are oncerns over the longevity and severity of the COVID-19 pandemic and its impact on global demand weighed on business confidence at the start of the second quarter.
Finally, as we look ahead to what the surveys may indicate for recoveries, it’s worth keeping in mind that a PMI reading of 50 merely means no change on the prior month. Given the recent experience of China, we can expect many of the world’s PMIs to move closer to 50 in the coming months. This may look v-shaped on a chart, but don’t be misled.
A reading of 50 will in fact mean none of the lost output has been recouped. The PMI would need to rise commensurately higher than 50 to make up for an equivalent drop below 50 in the prior month. Index readings of 60, 70 and even 80 are needed to signal meaningful recoveries from the extensive declines seen recently and, given the glacial pace at which COVID-19 restrictions are likely to be eased, such readings cannot be reasonably expected any time soon. Therefore, conditions to remain highly challenging over the next 12 months.
- IHS Markit, various reports