Global Economics Update
In this latest update from Capital Economics they confirm that the Purchasing Manager’s Indices (PMIs) show growth easing and inflation pressures rising.
The flash Purchasing Manager’s Indices (PMIs) for September show that the pace of growth slowed across developed economies towards the end of Q3, suggesting that the boost to activity from reopening is fading. But inflationary pressures show no signs of abating, with indicators of firms’ price pressures increasing again in September.
The flash composite PMIs fell in the euro-zone, UK and US. The fall in the PMIs was evident in both manufacturing and services, though the fact that both indices are above the “no-change” level of 50 implies that activity in both sectors is still increasing across all these economies.
The sharpest decline came in the euro-zone, where the composite PMI fell to a five-month low. But even taking into account the fall in September, the average PMI for Q3 still points to a pick-up in growth compared to Q2. Within the euro-zone, the PMIs show that growth slowed in both Germany and France. And although the slowdown in the pace of growth was less pronounced elsewhere in the euro-zone, the PMIs still fell to their lowest levels since April.
In the UK, the composite PMI suggests that the pace of recovery continued to slow in September, particularly in the manufacturing sector, with comments suggesting that materials and labour shortages were the main factors holding back activity.
The US composite PMI fell to a 12-month low in September, driven largely by a slowdown in the pace of growth in the service sector due in part to the spread of the Delta variant. And despite strong growth in new orders in manufacturing, supply constraints and material shortages weighed on manufacturing output.
Stretched supply chains was a common factor impeding growth across DMs. Suppliers’ delivery times lengthened further, while backlogs of work also increased, particularly in the manufacturing sector. This was most acute in the US where there was a near-record lengthening in delivery times and backlogs rose at their fastest pace on record.
Supply constraints and shortages continued to fuel price pressures: after easing slightly in August, input and output price indices both rose again in September. In the euro-zone, firms’ input prices rose at the fastest pace in 21 years. The PMIs also suggest that firms are becoming increasingly likely to pass these higher input costs on to customers, with output prices rising at the highest rate on record in the UK and at around a record pace in the euro-zone.
Overall, September’s flash PMIs suggest that while growth will moderate slightly, inflation will rise further in the coming months. Indeed, the recent sharp rise in gas prices is likely to add further pressure to firms’ operating costs, meaning that inflation will probably also remain higher for a little longer than we had previously expected. But we still expect a large share of these price pressures to be temporary, and inflation should fall back sharply next year.
An article by Ariane Curtis, Global Economist, Capital Economics - 23rd September 2021. The opinions expressed are those of Capital Economics using their independent research and are subject to market or economic changes.
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