In March, the world saw an unexpected acceleration in economic growth, as indicated by the JPMorgan Global PMI, compiled by S&P Global, rising from 52.1 in February to 53.4. This data suggests a robust quarterly annualized global GDP growth rate of approximately 3%, a significant reversal from the contraction experienced late last year.
However, deeper data analysis reveals potential cracks in the growth story, particularly in the reliance on the service sector. Manufacturing has stabilized since its downturn late last year, driven more by improved supply chains than increased demand. While supplier delays have eased, new orders into factories continued to decline in March, raising concerns about the sustainability of current production volumes.
On the other hand, the service sector has shown resilience, with substantial growth since late 2022. This expansion is driven by resurgent tourism, recreation, and travel, as well as a surprising revival of activity in the financial services sector. Yet, potential headwinds from banking sector stress and recent monetary policy tightening in the US and Europe could impact the sector’s ability to continue driving global growth.
Despite these concerns, the recent upturn in global output contrasts with recent policy rate hikes. The full impact of these policy changes is expected to have a delayed effect, potentially creating additional challenges from rising interest rates in the months ahead.
Looking at specific economies, India and Spain led global expansion in March, enjoying strong growth spells. Russia also experienced notable growth, compensating for a decline in trade flows due to sanctions. Mainland China’s growth accelerated as well, thanks to a resurgence in the service sector following the easing of COVID-19 containment measures. Japan saw its strongest upturn in nine months, while the UK experienced slowed growth. Brazil reported rising output, partially offsetting a manufacturing decline. Surprisingly, Australia was the only major economy in decline, according to composite PMI data.
One critical factor to consider in the coming months is the cooling of inflation, which will influence future interest rate decisions. While consumer price inflation is showing signs of peaking globally, wage growth remains a concern, particularly in the service sector, where input costs are rising. This could lead to continued above-trend inflation in the short term.