Economy in Brief

Composite PMIs are back to showing more places indicating improvement month-to-month. Only 40% of these 25 reporters have PMI values that weakens month-to-month up from 56% weakening in April. But there is an overpowering tilt of reporters showing expansion compared to contraction with only 4 reporters out of 25 showing contraction (Composite PMI<50) in May, the same as in April; March, has 6 reporters below 50.

Over 12 months more show weakening compared to a year ago, as 70% of reporters have PMIs below 50. But over six months that count is reduced to 34.8%, and over three months only 30% show weakening jurisdictions.

Contraction has been slightly more common over three-, six-, and 12-month periods, with 6-showing contraction over three months, 9-showing contraction over six months and 11-showing contraction over 12-months.

The percentile standings that are a completely different animal- they show the ranking of the PMI gauge over the last four years (to May 2020) compared to past performance. The 50% mark in the queue standing reflects the median value for each jurisdiction over the last four years. Ten of 25 jurisdictions are below their median performance in May. There is still a lot of under-performance.

The composite PMIs this month come of the heels of the release of the service sector PMIs that have values above 50 for all reporting participants except Russia. However, not all countries report services and manufacturing separately. Among the ten who report separate service sectors, seven of them showed growth erosion in May compared to April. So monthly PMI improvements are laid at the feet of manufacturing sectors or countries that do provide separate service sector status.

Smaller developing countries are struggling the most. The summary data show slight but steady increase in the average PMI that stands at 52.8 in May – above its three-month average. The median weakens over six months then rebounds above its 12-month average over three months as well as in May. The BRIC-3 (BIC? -excluding Russia) has the highest PMI average in the table at 56.2 in May. The U.S., U.K. and EMU are at 53.3, above the all-average and all-median. So, it’s the smaller economies that bring the averages lower. In May, Zambia, Egypt, and Hong Kong have PMIs below 50. France also has a PMI reading below 50. Apart from these, PMI reading below 52 are found in May for Kenya, Ghana, Sweden, and Russia (Ireland uses the reading from April that is below 52). On the strong side, May readings over 54 are featured in the U.S. (54.5), Spain (56.6), India (60.5), Saudi Arabia (56.4), UAE (55.3), Singapore (54.2), and China (54.1).

In terms of relativity, the queue standings for the BRIC-3 are at 76.5%, the All-average is at 56.7%, the U.S., U.K. and EMU are at 55.8%, and the All-median is at 55.1%. All these groupings show PMI values above their four-year medians. For those countries not included in any of those groups, the average queue standing is 54.4% and the median queue standing for them is 48%, their queue standings average below medians when pooled.

Inflation in Switzerland remains as a global envy. At 1.5% year-on-year and sequentially stable, or still moderating, the Swiss inflation rate continues to perform in its desired range as other advanced money center countries struggle to control their budgets, revive growth, and return to their pre-Covid inflation objectives.

Swiss growth remains moderate. The services sector underpins expansion while manufacturing in Switzerland occurs in the same global environment as for everyone else. That sector shows damped activity with a PMI reading indicating sluggish and contracting activity.

Swiss inflation trends reveal year-over-year inflation rates across CPI categories as higher in only 25% of them. Inflation rates over six months show more pressure with inflation accelerating in 75% of categories, but over three months conditions are stable with inflation acceleration in only 50% of categories balanced with deceleration.

That tempered behavior is not surprising because Swiss domestic ‘core’ inflation is even more tempered than its headline series. Swiss core inflation rises by 1.1% over 12 months and by less than 1% annualized over three months.

In this week's newsletter, we explore shifting trade patterns between China and the rest of the world. These shifts reflect changes stemming from the pandemic and, more importantly, from geopolitical pressures and supply chain dynamics. While China's export dependency on Western economies like the US and the EU has decreased, it remains substantial. Additionally, certain product categories, notably transportation equipment, have gained ground in China's export portfolio. In addition to this, we delve into China's rapid development in the electric vehicle (EV) sector, both domestically and internationally. This includes achieving high retail penetration domestically and experiencing rapid export growth abroad. However, concerns have been raised by several governments regarding overcapacity issues resulting from China's escalating EV exports, leading to discussions of possible retaliation via e.g. increased tariffs to address these concerns.

Expanding our scope, government concerns regarding overcapacity extend beyond EVs to other goods, such as steel products and cement, among others. Additionally, we examine China's trade relationships with its Asian neighbors, noting a diminished share of advanced Asian economies in China’s aggregate trade, while relationships with Southeast Asian nations and India have strengthened. Lastly, we delve into China's burgeoning bilateral trade ties with Vietnam, driven by deepening supply chain integration and Vietnam's reliance on China-sourced parts for its electronics exports. These developments underscore the intricate and evolving dynamics shaping China's trade landscape.

Shifts in China’s export composition In recent years, China's export landscape has undergone significant shifts, primarily influenced by the rearrangement of supply chain dynamics stemming from the pandemic and, more recently, heightened geopolitical factors. Chart 1 illustrates this transformation, depicting a decline in China's export share to Western economies like the US and the EU compared to pre-pandemic levels. Conversely, there has been an uptick in China's export share to Asian economies such as India and those in Southeast Asia. The relative significance of product categories within China's export mix has also undergone notable shifts. Specifically, China has witnessed a substantial increase in the export share of transportation equipment, plastics, rubbers, and basic metals. This surge can be attributed to an increase of exports of specific products, such as electric vehicles (EVs), a trend we will delve into further below.