Global manufacturing PMI data indicates a marginal slowdown in overall business activity, while the services PMI shows a mild recovery but remains weak in its expansion.

Key Observations

The June global manufacturing PMI reading was 52.2, a slight decrease from 52.7 in May, indicating a continued but moderating expansion. Production activities across consumer goods, intermediate goods, and investment goods all showed signs of recovery, reflecting some underlying support for long-term corporate capital expenditure globally. However, cost-push inflationary pressures continue to spread, with upstream sectors like chemicals and basic materials facing particularly acute pressure. The transmission of these upstream costs to midstream and downstream manufacturers is tightening, squeezing profit margins for these firms. Furthermore, a sustained decline in new export orders for some export-oriented economies has become a core weakness constraining further global manufacturing expansion, increasing operational pressures for businesses.

Major Economy Performance

In the United States, the ISM Manufacturing PMI for June registered 53.3, slightly down from May but marking a sixth consecutive month of expansion, demonstrating relative resilience in the sector. Policies encouraging manufacturing reshoring and inventory replenishment provide dual support, keeping production activity stable. However, the services sector performance fell short of expectations, with persistent weaknesses in employment, high inflation, and soft external demand. The issue of high imported inflation remains unresolved, continuing to compress manufacturing profit margins, making cost pressure a long-term constraint for US industry.

In the Eurozone, the pace of expansion continued to slow in June, with stagflation risks increasing. While there was some improvement in core members Germany and France, overall conditions remain sluggish. The pattern of simultaneous contraction in both domestic and external demand persists. Household purchasing power is being eroded by high energy prices and sustained inflation, leading to weak demand for industrial finished goods and durable goods. Italy's manufacturing expansion also slowed, hampered by weak new order growth and soft export demand, partly influenced by supply chain disruptions from Middle East conflicts. Spain's manufacturing sector experienced a slight contraction in June, below market expectations, with firms moderately reducing staff and procurement activities in response to weak sales.

Performance among emerging economies continued to diverge, with dual pressures from demand and costs becoming more pronounced. Indonesia's manufacturing activity contracted notably in June, with a significant drop in demand-side indicators like new orders and export orders. Simultaneously, input costs remained elevated due to raw material shortages and a weaker Rupiah, squeezing profits from both sides. Malaysia's manufacturing conditions showed a mild improvement, returning to expansion territory, though businesses maintained a cautious and watchful stance regarding overall procurement and inventory. The Philippines' manufacturing expansion continued from the previous month, primarily driven by sustained recovery in end-market demand and a concurrent rebound in new orders, especially in the electronics export sector which prompted firms to resume expansion plans. While manufacturing in Vietnam and India remained in expansion, the growth momentum weakened compared to the prior month. Russia's manufacturing PMI returned to expansion territory after several months below the threshold, mainly due to accelerated output growth and stabilizing new orders, though export demand remained weak and employment continued to decline.

Core Analysis

The June global manufacturing PMI data reveals a marginal slowdown in overall business activity, with the services PMI showing only a mild and weak recovery. From the perspective of core drivers, divergent demand conditions remain the primary source of regional differences in global manufacturing sentiment. Concurrently, the structure of global supply chains is undergoing significant changes. Relatively strong demand for electronics and semiconductors is directly driving recovery in related manufacturing supply chains in some emerging economies, while weak demand for traditional manufactured goods is leading to a decline in growth momentum. In the short term, over the next 1-3 months, the global economy is expected to maintain a pattern of mild expansion. Manufacturing will rely on existing backlogs and inventory replenishment to maintain resilience, but upside potential is limited. Constraints from weak external demand and high costs will gradually become more apparent, while low employment and inflation will weigh on growth, making a significant upturn unlikely. In the medium term, a K-shaped divergence pattern is likely to persist. The future evolution of geopolitical tensions in the Middle East, trends in energy prices, the pace of global demand recovery, and the divergent monetary policy choices of various nations will become the core variables determining the direction of the global economy.

The global services sector showed a slight recovery in June but lacked strong expansion momentum, with significant internal divergence. Professional services such as healthcare, pharmaceuticals, and technology equipment continued their strong growth, with the technology equipment sector maintaining high employment growth. In contrast, offline discretionary sectors like tourism, leisure, real estate, and construction-related services remained in contraction, acting as the primary drag on the services sector.