Global Economic Growth At A Four-Month Low

The global economy has shown a slight decline in growth in February 2013. The JP Morgan Global Manufacturing & Services PMI has hit a four-month low of 53 in the month, down from 53.2 in January 2013 this year. The average reading of 53.1 so far in the first quarter of the calendar year is marginally up against the same in Q4 of the last calendar year at 52.9. In the last two days, the PMI data across various countries has been published, indicating expansion in Asia, Russia, and the US. The Eurozone has continued with its slow pace.

PMIs are economic indicators derived from the surveys of private sector companies.

The PMI data from the Eurozone is very disappointing. The data in Italy, France and Spain has shown a contraction in their economies in February 2013. The business confidence across the zone has shown a steep downturn as the Eurozone composite PMI is at 47.3 against 48.6 in January. The only positive in is the Composite PMI data in Germany which came in above 50, showing an expansion in economy, the growth however has slowed down a bit. The PMI data also indicates some growth in new businesses there. Italy, France and Spain, on the other hand, have shown a fall in the new businesses and reduction in the employment levels. In Germany, however, employment has remained quite unchanged.

In Asia, the expansion has continued but at a slower rate. The China composite PMI data in January has shown a moderate decline but the numbers are above 50 indicating an expansion in the economy. New businesses and is on the rise while the employment scenario seems to be getting better. The Hong Kong PMI numbers have shown the weakest growth in the last 4 months but are still showing an expansion.

Russia has also continued with the expansion in its economy. Russia’s composite PMI numbers have come in robust at 54.9 against 54.8. The numbers are now showing 2.5 years of consistent expansion in the economy. UAE's non oil private business survey has also shown a steep rise in the economic activity. At 55.4 in February 2013 against 55 in January 2013, it is the highest expansion in the last 21 months.

On the domestic front, India has continued to witness expansion albeit at a slower pace. There is deceleration in new businesses but a rise in the employment. Inflation, however, is going up, giving less scope for monetary policy easing. Leif Eskesen, Chief Economist for India & ASEAN at HSBC said, “Activity in the services sector grew at a slower clip led by a deceleration in new businesses, but backlogs of work still increased. Input price inflation picked up notably, which was passed onto prices charged. The numbers underscore that the room for monetary policy easing is very limited.”

Overall, the numbers are only positive in Asia and Russia. European numbers are on a downslide and hence pose a downside risk to the global economy. German economy is showing expansion but that alone cannot bring the Eurozone back to the growth path. In fact, the steep decline in Spain is a major reason to worry.