Businesses worldwide experienced improved performance this month, with activity picking up in the US, Asia, and Europe, according to surveys released on Thursday. This has given central banks the option to postpone interest rate cuts, which were raised due to the Covid-19 pandemic to combat inflation. The focus has now shifted to when and by how much these rates will decrease, especially in countries holding elections this year.
India is currently holding elections, the US will follow in November, and British Prime Minister Rishi Sunak has called for a national election on July 4. An April Reuters poll of economists indicated that the global economy is likely to maintain its strong momentum throughout the year and into 2025, contrary to previous expectations of a slowdown. The US business activity accelerated to the highest level in over two years in May, suggesting a pickup in economic growth midway through the second quarter.
S&P Global reported that its flash US Composite PMI Output Index, tracking the manufacturing and services sectors, surged to 54.4 this month, the highest level since April 2022. This was followed by an increase in the services sector, with the flash PMI rising to 54.8 from 51.3 in April. The manufacturing flash PMI inched up to 50.9 from 50.0. However, manufacturers reported a surge in input prices, potentially indicating a rise in goods inflation in the coming months, which could be concerning for the Federal Reserve.
In Europe, activity expanded at its fastest pace in a year this month, driven by strong demand for services, while the manufacturing sector showed signs of recovery. HCOB’s preliminary composite Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 52.3 this month from April’s 51.7, surpassing expectations. Overall prices charged rose at their slowest pace since November, potentially opening the door to policy easing from the European Central Bank, which is anticipated to reduce interest rates during its upcoming meeting.
Germany’s headline PMI was above 50 for a second consecutive month, supported by robust services activity, but in France, the private sector unexpectedly shrank this month after expanding in April. Business activity in India expanded robustly in May, helped by the dominant services industry, and Japan’s factory activity crept into expansion for the first time in a year this month. While the Australian composite PMI remained solid, it did dip due to a continuing manufacturing downturn and slightly weaker services performance.
