markit economics 051013

The Science of FinanceThe Science of Finance

Monthly economic overviewMonthly economic overviewGMay 2013: Global economy sees subdued start to second quarter

Monthly economic overviewMonthly economic overview

Global economic growth slips to six-month lowHaving held up well in Q1 to signal a rate of global GDP growth that was much improved on the threeHaving held up well in Q1 to signal a rate of global GDP growth that was much improved on the three--year low of 1.4% year low of 1.4%

seen in Q4 the global PMI dropped to a sixseen in Q4 the global PMI dropped to a six month low in April to indicate a subdued start to Q2 Worldwide goods exportmonth low in April to indicate a subdued start to Q2 Worldwide goods exportseen in Q4, the global PMI dropped to a sixseen in Q4, the global PMI dropped to a six--month low in April to indicate a subdued start to Q2. Worldwide goods export month low in April to indicate a subdued start to Q2. Worldwide goods export

volumes have risen over the past two months, but manufacturing growth remains disappointingly weak and volumes have risen over the past two months, but manufacturing growth remains disappointingly weak and eased eased in April. in April.

Meanwhile, subdued demand in many countries caused growth of service sector activity to slow to the weakest for ten Meanwhile, subdued demand in many countries caused growth of service sector activity to slow to the weakest for ten

monthsmonthsmonths.months.

Global PMI and economic growth Global PMI and economic growth Global tradeGlobal tradeGDP annual % changePMI Global PMI Manu. Exports Index Global Manufacturing Exports y/y%

60

65

5.0%

7.0%GDP annual % changePMI

57

62

20%

30%p g p y y

50

55

1.0%

3.0%

42

47

52

10%

0%

10%

35

40

45

-5 0%

-3.0%

-1.0%

Global PMI Output Index

Global GDP32

37

42

30%

-20%

-10%

PMI Exports IndexGlobal exports

\ 2

35'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

-5.0% 32'98 '00 '02 '04 '06 '08 '10 '12

-30%


Among the major developed countries, the US continued to Among the major developed countries, the US continued to

US leads developed world economic expansion, while the eurozone floundersUS leads developed world economic expansion, while the eurozone flounders

65PMI Output Index (manufacturing & services)

see the strongest pace of growth, despite the rate having see the strongest pace of growth, despite the rate having

slowed sharply compared with the start of the year. slowed sharply compared with the start of the year. 55

60

65

Growth also eased in Japan, though remains in recovery Growth also eased in Japan, though remains in recovery

mode compared to the stagnation seen in the fourth quarter.mode compared to the stagnation seen in the fourth quarter.50

55

p g qp g q

Growth in the UK meanwhile improved to register the Growth in the UK meanwhile improved to register the

t t t i th Ol it t t i th Ol i l t d b t l tl t d b t l t

40

45

UKEurozone

strongest upturn since the Olympicsstrongest upturn since the Olympics--related boost last related boost last

August.August.30

35

2008 2009 2010 2011 2012 2013

USJapan

Developed world PMIsDeveloped world PMIsIn contrast, an ongoing deep recession continued to be In contrast, an ongoing deep recession continued to be

recorded in the eurozone. recorded in the eurozone.

2008 2009 2010 2011 2012 2013

\ 3


Measured across all emerging markets covered by the PMIs, Measured across all emerging markets covered by the PMIs,

Signs of stalling growth evident across the largest emerging marketsSigns of stalling growth evident across the largest emerging markets


output rose at the slowest rate since September 2011, output rose at the slowest rate since September 2011,

registering the secondregistering the second--weakest performance seen in the last weakest performance seen in the last 55

60

four years. four years.

Growth slowed to a sixGrowth slowed to a six--month low in China, while rates of month low in China, while rates of 50

55

expansion were the weakest for a yearexpansion were the weakest for a year--andand--aa--half in India half in India

and Russia. Brazil was the only BRIC economy to register and Russia. Brazil was the only BRIC economy to register 40

45ChinaIndia

Brazilfaster growth in April, but even there the pace of expansion faster growth in April, but even there the pace of expansion

remained weak. remained weak. 30

35

2008 2009 2010 2011 2012 2013

BrazilRussia

Emerging market PMIsEmerging market PMIsWorryingly, stalling or weakened service sector growth points Worryingly, stalling or weakened service sector growth points

to a lack of growth of domestic demand in the world’s biggest to a lack of growth of domestic demand in the world’s biggest

2008 2009 2010 2011 2012 2013

\ 4

emerging markets.emerging markets.


S Korea tops manufacturing rankings, while France displaces Greece at bottomSouth Korea pushed the US into second place at the head of the manufacturing PMIs league table in April. Japan was South Korea pushed the US into second place at the head of the manufacturing PMIs league table in April. Japan was

also a notable climber up the table up from 12th to 6th place France meanwhile displaced Greece at the foot of the tablealso a notable climber up the table up from 12th to 6th place France meanwhile displaced Greece at the foot of the tablealso a notable climber up the table, up from 12th to 6th place. France meanwhile displaced Greece at the foot of the table, also a notable climber up the table, up from 12th to 6th place. France meanwhile displaced Greece at the foot of the table,

and Germany slid further down. In terms of manufacturing exports, the growth rankings were led by the UK for the first and Germany slid further down. In terms of manufacturing exports, the growth rankings were led by the UK for the first

time in the global PMI series history, followed by South Korea and Japan.time in the global PMI series history, followed by South Korea and Japan.

55MarchApril

Manufacturing PMI

50

45

40 Fran

Spa

Gre

Italy

Pola

Aus

Irela

Ger

Net

Den

Cze

UK

Can

Sw

i

Chin

WO

Sou

Rus

Taiw

Braz

Viet

Indi

Jap

Turk

Indo

Mex

US

S K

\ 5

nce

ain ece

y and

stria

and

rmany

herlands

nmark

ech Rep.

nada

tzerland

na

OR

LD

uth Africa

ssia

wan

zil

tnam

a an

key

onesia

xico

Korea


No end in sight to Fed stimulus despite better-than-expected jobs dataUS GDP grew at an annualised rate of 2.5% in Q1, up from 0.4% in Q4, but after allowing for inventories the pace slowed US GDP grew at an annualised rate of 2.5% in Q1, up from 0.4% in Q4, but after allowing for inventories the pace slowed

from 1 9% to 1 5% Surveys suggest this slowdown persisted into Q2 with the allfrom 1 9% to 1 5% Surveys suggest this slowdown persisted into Q2 with the all sector PMI (based on both Markit andsector PMI (based on both Markit andfrom 1.9% to 1.5%. Surveys suggest this slowdown persisted into Q2, with the allfrom 1.9% to 1.5%. Surveys suggest this slowdown persisted into Q2, with the all--sector PMI (based on both Markit and sector PMI (based on both Markit and

ISM data) hitting a tenISM data) hitting a ten--month low in April. Employment growth was meanwhile strongermonth low in April. Employment growth was meanwhile stronger--thanthan--expected, driving the jobless expected, driving the jobless

rate down to its lowest since 2008. However, the rate of job creation is unlikely to encourage the Fed to start withdrawing rate down to its lowest since 2008. However, the rate of job creation is unlikely to encourage the Fed to start withdrawing

stimulus any time soon given the weak activity datastimulus any time soon given the weak activity datastimulus any time soon, given the weak activity data. stimulus any time soon, given the weak activity data.

US US PMI and economic growthPMI and economic growth US nonUS non--farm payrolls and unemploymentfarm payrolls and unemploymentComposite PMI GDP q/q% Unemployment rate (%) Monthly change in payrolls (thousands)

57

62

67

0.5

1.0

1.5Composite PMI GDP, q/q%

9

10

11

200

400

600Unemployment rate (%) Monthly change in payrolls (thousands)

47

52

57

1 0

-0.5

0.0

7

8

9

400

-200

0

37

42

-2.0

-1.5

-1.0

GDP

PMI5

6

-800

-600

-400

Monthly payrolls change

Unemployment

\ 6

322006 2007 2008 2009 2010 2011 2012 2013

-2.5 42008 2009 2010 2011 2012 2013

-1000


Japan’s policymakers rewarded with growth upturn and rising price pressuresJapan’s PMIs showed growth easing from March’s jointJapan’s PMIs showed growth easing from March’s joint--record high, but the pace of expansion remained consistent with record high, but the pace of expansion remained consistent with

over 1% quarterly growth in GDP Companies reported that improved confidence arising from recent stimulus packagesover 1% quarterly growth in GDP Companies reported that improved confidence arising from recent stimulus packagesover 1% quarterly growth in GDP. Companies reported that improved confidence arising from recent stimulus packages over 1% quarterly growth in GDP. Companies reported that improved confidence arising from recent stimulus packages

and export gains from the weaker yen have helped revive growth. There were also promising signs in the fight against and export gains from the weaker yen have helped revive growth. There were also promising signs in the fight against

deflation. Manufacturers’ input costs rose at the fastest rate for over a yeardeflation. Manufacturers’ input costs rose at the fastest rate for over a year--andand--aa--half, and service sector costs showed half, and service sector costs showed

one of the strongest increases since 2008one of the strongest increases since 2008one of the strongest increases since 2008. one of the strongest increases since 2008.

Japan Japan PMI and economic growthPMI and economic growth Japanese input pricesJapanese input pricesMarkit Japan Composite PMI Japan GDP q/q% PMI Input Costs Index

52

57

1.0

2.0

3.0Markit Japan Composite PMI Japan GDP, q/q%

70

75

80

ManufacturingServices

PMI Input Costs Index

42

47

-2.0

-1.0

0.0

55

60

65

32

37

-5.0

-4.0

-3.0

GDP

PMI 40

45

50

\ 7

272006 2007 2008 2009 2010 2011 2012 2013

-6.0 352008 2009 2010 2011 2012 2013


Euro area recession continues, with renewed downturn in GermanyThe Eurozone PMI rose slightly in April, but the surveys continued to indicate a strong pace of economic contraction. The Eurozone PMI rose slightly in April, but the surveys continued to indicate a strong pace of economic contraction.

Weakness is spreading across the region with steep downturns in France Italy and Spain now joined by a renewedWeakness is spreading across the region with steep downturns in France Italy and Spain now joined by a renewedWeakness is spreading across the region, with steep downturns in France, Italy and Spain now joined by a renewed Weakness is spreading across the region, with steep downturns in France, Italy and Spain now joined by a renewed

downturn in Germany, where output fell for the first time since last November. The ECB reacted to the ongoing recession downturn in Germany, where output fell for the first time since last November. The ECB reacted to the ongoing recession

by trimming its main policy rate to an allby trimming its main policy rate to an all--time low of 0.5%, though few expect the cut to have a material impact.time low of 0.5%, though few expect the cut to have a material impact.

Eurozone Eurozone PMI and economic growthPMI and economic growth Output by countryOutput by countryMarkit Eurozone Composite PMI Eurozone GDP q/q% PMI Output Index (manufacturing & services)

60

65

1.0

2.0Markit Eurozone Composite PMI Eurozone GDP, q/q%

60


45

50

55

-1 0

0.0

45

50

55

35

40-2.0

-1.0GDP

PMI35

40GermanyFranceItalySpain

\ 8

302006 2007 2008 2009 2010 2011 2012 2013

-3.0 302009 2010 2011 2012 2013

p


UK economy starts Q2 on good footing, after better-than-expected growth in Q1The April PMIs signalled the fastest rate of expansion in the UK since the OlympicsThe April PMIs signalled the fastest rate of expansion in the UK since the Olympics--related growth spurt seen last August. related growth spurt seen last August.

A weaker currency boosted manufacturing exports while construction output stabilised and activity growth picked upA weaker currency boosted manufacturing exports while construction output stabilised and activity growth picked upA weaker currency boosted manufacturing exports, while construction output stabilised and activity growth picked up A weaker currency boosted manufacturing exports, while construction output stabilised and activity growth picked up

further in services. The improved survey data point to a good start to Q2 and, coming on the back of a betterfurther in services. The improved survey data point to a good start to Q2 and, coming on the back of a better--thanthan--

expected 0.3% increase in GDP in Q1 and above target inflation, meant the Bank of England saw no need for more expected 0.3% increase in GDP in Q1 and above target inflation, meant the Bank of England saw no need for more

stimulus at its May MPC meetingstimulus at its May MPC meetingstimulus at its May MPC meeting.stimulus at its May MPC meeting.

UK UK PMI and economic growthPMI and economic growth UK manufacturing exportsUK manufacturing exportsComposite PMI GDP, q/q% UK PMI Manufacturing Exports Index 3m/3m % chg exports (ONS)

57

62

0.5

1.0

1.5p GDP, q/q%

60

65

8

12U a u actu g po ts de 3 /3 % c g e po ts (O S)

47

52

1 0

-0.5

0.0

50

55

0

4

37

42

-2.0

-1.5

-1.0

GDP

PMI40

45

-8

-4

UK goods exportsPMI New Export Orders

\ 9

322006 2007 2008 2009 2010 2011 2012 2013

-2.5 352007 2008 2009 2010 2011 2012 2013

-12


Equities surge to new highs on central bank largesseGlobal equities hit a postGlobal equities hit a post--crisis high again in early May, with the S&P 500 reaching an allcrisis high again in early May, with the S&P 500 reaching an all--time record. Earnings have not time record. Earnings have not

disappointed but the main thrust comes from central bank stimulus boosting asset prices However with the FTSE All Worlddisappointed but the main thrust comes from central bank stimulus boosting asset prices However with the FTSE All Worlddisappointed, but the main thrust comes from central bank stimulus boosting asset prices. However, with the FTSE All World disappointed, but the main thrust comes from central bank stimulus boosting asset prices. However, with the FTSE All World

index some 25% above its average over the past 12 months, equity price momentum and the PMI are moving in opposite index some 25% above its average over the past 12 months, equity price momentum and the PMI are moving in opposite

directions suggesting either improved equity sentiment will soon feed through to the real economy, or that stimulus is not directions suggesting either improved equity sentiment will soon feed through to the real economy, or that stimulus is not

having the expected impact on growthhaving the expected impact on growthhaving the expected impact on growth. having the expected impact on growth.

Worldwide Worldwide equity prices equity prices % change since: pre-crisispeak

end of 2012

last month

FTSE All World Index, divergence from 12 month ave. Global PMIFTSE All World -11.2 10.7 5.5

Dow Jones Industrial Ave. 6.6 15.3 3.4

S&P 500 4.3 14.5 4.520

40

60

60

65S o d de , d e ge ce o o t a e G oba

FTSE 100 -2.2 11.6 4.9

Eurofirst 80 -37.2 5.9 6.9

Dax 30 -16 9 5 1 5 640

-20

0

50

55

Dax 30 -16.9 5.1 5.6

CAC 40 -35.9 8.7 7.9

Shanghai Composite -63.1 -1.0 1.6-80

-60

-40

40

45

Global share price momentum

Global PMI

\ 10

Nikkei 225 -21.8 37.4 8.3-100'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

35Global PMI

mines mines datadatapoolspools intelligenceintelligencepoolspools intelligenceintelligencesurfacessurfaces informationinformationenablesenables transparencytransparencyenablesenables transparencytransparencybuildsbuilds platformsplatforms

ididprovides provides accessaccessscales scales volumevolume

dd kkextendsextends networksnetworks& transforms & transforms businessbusiness..

Disclaimer

The information contained in this presentation is confidential. Any unauthorised use, disclosure, reproduction or dissemination, in full or in part, in any media or by any means, without the prior written permission of Markit Group Holdings Limited or any of its affiliates ("Markit") is strictly prohibited.

Opinions statements estimates and projections in this presentation (including other media) are solely those of the individual author(s) at the timeOpinions, statements, estimates and projections in this presentation (including other media) are solely those of the individual author(s) at the time of writing and do not necessarily reflect the opinions of Markit. Neither Markit nor the author(s) has any obligation to update this presentation in the event that any content, opinion, statement, estimate or projection (collectively, "information") changes or subsequently becomes inaccurate.

Markit makes no warranty, expressed or implied, as to the accuracy, completeness or timeliness of any information in this presentation, and shall not in any way be liable to any recipient for any inaccuracies or omissions Without limiting the foregoing Markit shall have no liability whatsoevernot in any way be liable to any recipient for any inaccuracies or omissions. Without limiting the foregoing, Markit shall have no liability whatsoever to any recipient, whether in contract, in tort (including negligence), under warranty, under statute or otherwise, in respect of any loss or damage suffered by any recipient as a result of or in connection with any information provided, or any course of action determined, by it or any third party, whether or not based on any information provided.

The inclusion of a link to an external website by Markit should not be understood to be an endorsement of that website or the site's owners (or theirThe inclusion of a link to an external website by Markit should not be understood to be an endorsement of that website or the site s owners (or their products/services). Markit is not responsible for either the content or output of external websites.

Copyright ©2013, Markit Group Limited. All rights reserved and all intellectual property rights are retained by Markit.

markit economics 051013

Economy & Finance