The latest survey data suggest that economic growth accelerated in June thanks to a faster recovery in manufacturing and services, alongside continued strength in construction activity. The recovery should remain robust in the coming months as strong infrastructure spending offsets external weakness.
Activity ends Q2 on a strong note
- The latest survey data suggest that economic growth accelerated in June thanks to a faster recovery in manufacturing and services, alongside continued strength in construction activity. The recovery should remain robust in the coming months as strong infrastructure spending offsets external weakness.
- The official manufacturing PMI rose from 50.6 in May to 50.9 in June (the Bloomberg consensus was 50.4, our forecast was 50.5). (See Chart 1.) The export orders component jumped but it remains much weaker that overall new orders (see Chart 2), implying that domestic demand remains the main driver of the recovery. Input and output prices rose to their highest level in 2020, another sign that demand is recovering and easing disinflationary pressures.
- The official non-manufacturing PMI also rose, from 53.6 to 54.4 last month (Bloomberg 53.5, CE 53.0). The services index increased from 52.3 to 53.4, its highest since last November. The construction index dropped from 60.8 to 59.8 but remains strong and the business expectations component rose to a 19-month high. All told, the official composite PMI changed from 53.4 to 54.2, its highest level since mid-2018, and suggests that the overall pace of the recovery increased last month. Employment conditions in the manufacturing and construction sectors softened a bit, though they remain stronger than in the service sector. (See Chart 3.)
- The recovery is set to continue in the coming months. Admittedly, exports look ripe for a pullback despite the improvement in export orders last month (see Chart 4): the exports of COVID-linked products (masks, medical products and work-from-home equipment) that held a hand under exports earlier in the global outbreak will probably weaken before long. But the continued rapid issuance of government bonds means that infrastructure spending should remain strong and help keep the recovery on track.
Chart 1: Official PMIs
Chart 2: Official Manufacturing PMI
Chart 3: PMI Employment Components
Chart 4: Exports & PMI – New Export Orders
Sources: CEIC, Capital Economics