PMIs provide more evidence of uneven recovery - Capital Economics
Emerging Markets Economics

PMIs provide more evidence of uneven recovery

Emerging Markets Economics Update
Written by Nikhil Sanghani

The further rise in the EM manufacturing PMI to a nine-year high of 52.5 in August, from 51.4 in July, suggests that the EM recovery continued in the middle of Q3. But the rebound has been uneven across countries, with PMIs falling in countries recently re-imposing restrictions (Colombia and the Philippines).

  • The further rise in the EM manufacturing PMI to a nine-year high of 52.5 in August, from 51.4 in July, suggests that the EM recovery continued in the middle of Q3. But the rebound has been uneven across countries, with PMIs falling in countries recently re-imposing restrictions (Colombia and the Philippines).
  • The strength of the EM manufacturing PMI in August was partly due to the rise in China’s Caixin index, which also hit a nine-year high last month. But there were also gains elsewhere in the emerging world. (See Chart 1.) They were most notable in Brazil, South Africa and India. (See Chart 2.)
  • While that provides some reassurance that activity in those latter three countries is recovering, we wouldn’t read too much into these figures. Other surveys in Brazil are less optimistic about the outlook. And in all three countries, we think that recoveries will lose momentum. (See here, here and here.)
  • Elsewhere, PMI indices fell last month in Vietnam, the Philippines and Colombia. That coincides with the re-imposition of restrictions in response to rising Covid-19 cases, echoing the message from our high-frequency Mobility Trackers that recoveries there have stalled. The disruption in Vietnam will probably be short-lived as the virus appears to have been controlled again, but may be more prolonged in the latter two.
  • Otherwise, the PMIs suggest the recovery is being mainly driven by domestic conditions. While they have risen sharply since April, the new orders component of the EM manufacturing PMI has generally stayed higher than the new export orders component. (See Chart 3.) That suggests the easing of local coronavirus containment measures is providing the main prop to EM industry, while the external outlook has been challenging. With headwinds to EM exporters growing, we suspect that will continue to be the case.
  • Finally, price pressures may be building. Both the input and output price components of the EM PMI rose to their highest level since late 2018. (See Chart 4.) That probably reflects the recent rebound in oil prices, as well as potential supply shortages and the return of demand. We think that EM inflation will edge up over the coming months, which means the EM easing cycle will probably slow from here.

Chart 1: Headline Manufacturing PMIs

Chart 2: Change in Headline Mfg PMIs (Jul. to Aug.)

Chart 3: EM Mfg PMI New Orders & New Export Orders

Chart 4: EM Mfg PMI Input & Output Prices

Sources: Markit, Capital Economics


Nikhil Sanghani, Emerging Markets Economist, nikhil.sanghani@capitaleconomics.com