Global economic growth hit by Omicron but supply tensions ease
The global economy slowed in December as the growing number of COVID-19 cases hampered the expansion of the service sector. The new wave of the virus comes at a time when the manufacturing sector is reporting an easing of supply constraints, which had helped boost production levels.
The main risk to watch out for until 2022 will be whether the Omicron variant will further dampen growth and disrupt supply chains again, just as the recovery in demand after the pandemic wears off.
Global economic growth slowed in late 2021 amid rising COVID-19 infection rates, while remaining robust. The JPMorgan Global PMI ™ (compiled by IHS Markit) fell from 54.8 in November to 54.3 in December, a three-month low.
Compared to a long-term average of 53.6 before the pandemic, the latest reading signals annualized quarterly growth in global GDP above the trend of around 3-3.5%.
The data therefore points to stable economic growth in the fourth quarter as a whole, with an expansion rate slightly above that of the third quarter but remaining well below the growth spurt seen in the second quarter.
Global PMI and GDP
Omicron slows down service sector but factories benefit from easing bottlenecks
The PMI was pulled down by slower growth in the services sector, which fell to a three-month low. In contrast, manufacturing growth accelerated to its highest since July, although lagging behind services growth for the ninth consecutive month.
Global PMI and Covid-19 containment
* IHS Markit’s COVID-19 Containment Index is based on a set of measures applied by governments to control the spread of the pandemic, such as non-essential business closures, school closures and restrictions of travel and mobility linked to social distancing policies. As these measures harden, the index rises towards 100 and a relaxation of the measures drops the index towards zero.
The weaker expansion of the manufacturing sector relative to services in recent months is due to the fact that the service sector has benefited from the opening of economies after the lockdowns linked to COVID-19, while manufacturing has seen slumps. difficulties in the context of persistent supply constraints.
However, in December, these two trends reversed somewhat. Rising COVID-19 infection rates, fueled by the increasing spread of the Omicron variant, has resulted in new restrictions (both imposed and voluntary) on face-to-face service industry activity in some savings in December. Meanwhile, manufacturers have reported that constraints on production have eased, but still remain a significant drag on production in many cases.
Supply constraints are easing
Measured globally, the number of companies saying production was constrained by shortages of raw materials or personnel fell for a second month in December, from an all-time high in October, although it is still almost three times the long-term average.
The degree of extension of supplier delivery times also moderated for a second consecutive month in December to the lowest since March, suggesting that – although supply chains remain under pressure – the worst may have passed in terms of average supplier deadlines.
Delivery times from global manufacturing suppliers
This easing of the supply crisis is underscored by PMI surveys also showing that the number of companies reporting items in shortage fell to the lowest since February, suggesting that shortages peaked in June.
Most importantly was a further reduction in the number of companies reporting a semiconductor shortage, which fell in December to the lowest since January of last year.
The recovery in demand is running out of steam
However, it should be noted that Omicron’s new wave of COVID-19 poses a risk to future growth via further disruption to production and the supply chain. Note that the latest PMI data – December – was collected at a time when the number of COVID-19 cases continued to rise.
Furthermore, just as the compression of the supply chain shows signs of easing, the recovery in global demand shows signs of abating. Measured by the number of companies around the world that said growing demand contributed to the increase in new order intake, PMI surveys indicate that the recovery in demand peaked in June 2020, with a second wave of demand peaked a year later in June 2021. Since then, the contribution of demand to the increase in order books has followed a downward trend, sliding in December to the lowest since April 2020, at the start of the pandemic.
United States leads the expansion in the developed world
For the major developed economies, the United States led the expansion in December, with growth showing greater resilience relative to the United Kingdom and the euro area, where growth rates have risen sharply. slow motion. The most notable divergences were evident in the service sectors, linked to increasing COVID-19 restrictions in Europe. While the UK and Eurozone growth rates fell sharply to ten- and nine-month lows respectively, the US experienced only a very marginal slowdown.
Meanwhile, Japan continued to lag, reporting slightly weakened output growth in manufacturing and services, while continuing to pull out of the Delta wave-induced slowdown experienced between May and September. from last year.
Production in major developed markets
India leads emerging markets
Looking at the four largest emerging markets, India recorded the fastest growth rate for the fifth consecutive month in December, albeit with slower growth in manufacturing and services at its weakest. since September, as the rebound from the Delta wave faded and concerns about the new viruses intensified.
COVID-19 factors also inhibited growth in Russia and Brazil, the former more or less stagnated following a third month of decline in service sector activity and the latter saw its growth hold steady six-month low seen in November thanks to a slowdown in manufacturing.
In contrast, China saw a marked acceleration in the rate of growth, with activity increasing at the fastest pace since July, with manufacturing and services companies continuing to recover from the disruptions caused by the Delta wave, aided in part also by the increase in demand thanks to government measures. to lower prices.
Production in the main emerging markets
Editor’s Note: The bullet points for this article were chosen by the editors of Seeking Alpha.