Global contraction arrested, according to manufacturing PMIs

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The contraction in global manufacturing sector was arrested in December. The slight improvement in the global manufacturing PMI that I calculate on a GDP-weighted basis for the major economic regions improved to 50.4 from 49.6 in November.

The U.S. again led the way with the ISM Manufacturing PMI rising 0.5 points to 53.2.

A strong contra-seasonal turnaround in China’s CFLP Manufacturing PMI to 50.3 from 49.0 in November together with Japan’s improvement from 49.1 to 50.2 lent solid support.

The contraction in the Eurozone’s manufacturing sector eased somewhat as the situation in especially France improved markedly. The deep contraction in Greece, Italy and Spain continues, though, with Emerging Europe feeling the heat of the Eurozone’s malaise.

The manufacturing sector in the Far East has turned for the better. India’s PMI improved strongly to a near robust 54.2. Australia is growing again while the contraction in Taiwan eased significantly.

Sources: Markit*;Li & Fung**; Kagiso***; Plexus Asset Management****; ISM*****.

Sources: Markit*; Li & Fung**; Plexus Asset Management****; ISM*****.

Sources: Markit*;Li & Fung**; Plexus Asset Management****;ISM*****.

While there is a glimmer of light at the end of the tunnel, the improved global manufacturing PMI does not yet signal a turnaround in global manufacturing. The upcoming festive season in China is likely to suppress that country’s manufacturing sector while the austerity measures in the problem countries in the Eurozone will have a strong negative impact on consumption in the Eurozone economy as a whole.

I reiterate that the current state of the global manufacturing sector leaves global central bankers no other choice than to act aggressively to stop the rot. We should expect more announcements in coming weeks regarding lower reserve requirements for banks and interest rate cuts in countries such as the BRICs where interest rate cuts can still have a major impact on the economies.

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