World Economy

Global Manufacturing Activity Strengthens

Global Manufacturing Activity StrengthensGlobal Manufacturing Activity Strengthens

The world economy showed signs of stabilizing after a recent moderation as manufacturing activity strengthened for the first time this year.

A purchasing managers index for factories across more than 40 countries rose to 53.5 in April from March’s six-month low of 53.3, IHS Markit said in a report. Gauges of production and new orders both rose, though export growth slowed, Bloomberg reported.

The numbers reinforce the advice from economists at Goldman Sachs and JPMorgan Chase not to bet against the world economy just yet. They could calm investors who spent the early part of 2018 fretting about a trade war and fading global growth despite forecasts from the International Monetary Fund for the fastest expansion this year since 2011.

“Forward-looking orders data point to solid output gains in coming months,” said David Hensley, director of global economic coordination at JPMorgan Chase in New York. He predicts global growth of 3.9% this year, the same pace as forecast by the IMF.

Economists led by Jan Hatzius at Goldman Sachs are even more optimistic, saying this week that they are looking for a 4.1% expansion in 2018.  

There are still areas of concern. Growth in the eurozone slowed to the weakest in six quarters in the first three months of the year. In manufacturing, while the US PMI hit the highest since 2014, the eurozone slipped to the lowest in more than a year.

Among the reasons to stay optimistic are that activity may have been restrained in the early part of 2018 by one-off factors such as poor weather, an outbreak of flu in Germany, strikes in France and the timings of Easter and holidays in China.

President Donald Trump’s tax cuts have also yet to fully take effect while tight labor markets should increasingly generate wage growth, underpinning consumer confidence and spending. Central banks are signaling they will lean toward supporting demand by taking care to remove the record low interest rates of the past decade.

The Federal Reserve left its benchmark rate unchanged late on Wednesday, acknowledging inflation is close to target without indicating any intention to veer from a gradual tightening path.

At Deutsche Bank AG, currency strategist Alan Ruskin said the manufacturing figures should “play against fears of a more precipitous global slowdown,” although he noted the readings in many economies were below where they were three months ago.

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