Disappointing PMI Readings Add To COVID Woes

China’s share of world GDP in PPP terms is 19.7%, as per IMF, implying any slowdown in the Chinese economy will trickle down on the global economy as well.

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The virus has brought the Chinese economy to a halt and its impact is being felt in various industries. It has not only affected China but also parts of Asia, Europe and North America.

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With millions of people in lockdowns in various cities, lost revenues, disrupted supply chains due to factory shutdowns, falling global oil and commodies demand and shortage of products from China are affecting all the economies around the world.

First Output Shrink Since October 2013 For US Economy

Purchasing Managers Index (PMI) reflects the ongoing direction of economic trends in the manufacturing and the services sector. While PMI above 50 shows expansion, the index below 50 shows a contraction.

The Composite Output index is GDP weighted average of the Services Business Activity Index and Manufacturing Output Index.

As per IHS Markit’s analysis of PMI data, US Composite PMI Output Index stood at 49.6 in February, a fall from 53.3 in January 2020.

The US Services PMI Business Activity Index recorded 49.4 in February, down from 53.4 in January, while US Manufacturing PMI registered a fall from 51.9 in January to 50.8 in February.

US business activity slowed down for the first time in February 2020 since the financial crisis.

The services sector experienced major weakness, also followed by a slight halt in manufacturing activity due to stalling orders.

Casting Eye on US Economy; Outlook Ahead

US economy stepped into 2020 with growth in real GDP at 2.3% in 2019, after a rise of 2.1% annually in seasonal and inflation-adjusted terms in fourth quarter 2019, as per BEA.

January 2020 started on a positive note with a boost in consumer confidence on better labour market assessment. The US displayed more flexibility than anticipated due to strong exports.

However, private consumption slowed in December quarter 2019, and non-residential investment continued to deteriorate for the third straight quarter.

The US economy is expected to lose some momentum in 2020. Business investment is likely to remain strangled due to softened global backdrop and continuing negative impact of prior trade disputes.

Moreover, some analysts expect a remarkable recovery in business sentiment for the coming year reflecting that the current slowdown is going to be temporary. However, the suspension of Boeing 737, MAX jetliner production in January 2020 and coronavirus outbreak could act as a possible hindrance in growth; the extent of impact is yet to be seen.

On the trade side, US and China signed a deal on 15 January in phase 1 which included currency agreements, tariffs, financial services markets, intellectual property and US product purchases by China. Although it is a welcome reconciliation, it is expected to have an only small impact on growth until the second phase of the deal.

Even The Domestic PMI Data Shows A Challenging Situation In The Home Country

Commonwealth Bank Flash Composite PMI stood at 48.3 in February 2020, compared to 50.2 in January 2020, signalling a fall in business activity with both service companies and manufacturers registering lower output.

The rate of reduction was the steepest since May 2016 on account of a combination of reasons like subdued demand, adverse weather conditions and the outbreak of coronavirus.

The Commonwealth Bank Services PMI declined to 48.4 in February 2020 compared to 50.6 in January 2020, while the Manufacturing PMI dropped to 49.8 compared to 49.

The private sector business activity has been deteriorating due to weakening business expectations which reflect that companies foresee challenging economic environment ahead.

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Positive PMI Numbers For UK And Eurozone

The Flash UK Composite Output Index stood at 53.3 in February 2020, unchanged from January figure. The manufacturing growth picked up to a ten-month high offsetting a slight loss of impetus in the services sector.

There are signs of disturbance in export sales and disruptions in business operations from coronavirus outbreak, but the latest data signalled at edging up of output growth expectations across UK private sector.

Service companies are more positive about business activity in the coming year than manufacturing but with a slight change in each case since early 2020.

The Flash Eurozone Composite PMI is registered at 51.6 in February as compared to 51.3 in the previous month. This expansion was led by resilience in the services sector and signs of pulling out the manufacturing industry from a downturn. The rate of expansion increased for the third month straight, notwithstanding signs of dampening demand and production being blocked by the outbreak of coronavirus.

Overall, the outlook remains quite uncertain with respect to further disturbances in supply and the delivery time, new orders, tourism, travel and demand due to unfolding impact of coronavirus.