PMI Data Hints At Optimism

The new year 2013 has started off positive, holding up the euphoric note built over late 2012. The US fiscal cliff situation has been held in abeyance for a while, and this has helped markets all over the world to consolidate their position.

Adding to the buoyant spirits, another macroeconomic indicator, the Purchasing Manufacturing Index (PMI) is also moving higher. This indicates that the world is witnessing higher manufacturing activity.

On Jan 2, 2013, HSBC came out with the world PMI data for Dec 2012, which showed signs of strength. This is evident from the fact that HSBC’s world PMI data for the month has seen an improvement and has actually expanded (50.2) after contracting (49.6) in the month of Nov 2012. (A PMI reading above 50 indicates growth and one below 50 indicates contraction.)

For India, the HSBC PMI figure for Dec 2012 stood at 54.7, which is higher by 100 basis points on a month-on-month basis. The press release stated that this was because the growth in new orders was at a six month high and also on account of an expansion in export orders.

In an earlier article ‘Positive PMI Data Sends Wave Of Confidence Through The Markets’ we, at DSIJ, had stated that India's PMI data is bottoming out, and hence, one could see growth going ahead. This is exactly what has happened. With the government taking bold steps on the reforms front, consumer and corporate sentiment is improving, which will help the economy to expand.

Further, the manufacturing activity of the world’s two largest economies, US and China, also showed an improvement in the month of Dec. The PMI for US stood at 54 against 52.8 in Nov 2012, and was the strongest since May 2012, primarily after new work and export orders increased at a good rate. China’s PMI for Dec 2012 stood at 51.5 versus 50.5 in the month of Nov 2012. The country witnessed a slight fall in export orders, but new orders saw an uptrend.

According to the Reuters Global GDP calculator, US and China weigh around 22 and 12 per cent in relation to the world GDP growth. With manufacturing activity improving, we believe that these economies will witness an improvement in their growth, which will support world economic growth going ahead.

The PMI number for the Euro zone, though, came in at the lower end. This stood at 46.2 for Dec 2012 against 46.1 in the previous month. We believe that the region will still take time to recover fully, but it is still noteworthy that the number has not decreased substantially. France, Italy and Netherlands were among the countries that witnessed an expansion in manufacturing activity, while Ireland, Greece, Spain, Austria and Germany witnessed a contraction.

The overall improvement in the global PMI data indicates that things would gradually improve in 2013 and growth will pick up in India as well as in the rest of the world.