Global Economy Sees Pickup as Services Revive and Factories Boom

The global economy is showing signs of stronger growth as factories continued to boom and service providers recognized the benefits of vaccination programs.

After a sharp decline in 2020, the global economy is expected to recover strongly this year as vaccination programs allow more parts of the service economy to be fully reopened. There were already signs of a recovery in the US and China in the first few months of the year, but polls of purchasing managers released on Friday show that Europe is also beginning to join the recovery.

There are still threats to recovery, not least the possibility that new variants of the Covid-19 virus may be more resistant to vaccinations and more easily transmitted. Activity restrictions persist in many parts of the world, and the largest one-day increase in new infections in the world was reported in India on Thursday.

Many European countries still have restrictions on services that require proximity and most forms of international travel. However, the surveys recorded the first expansion of activity in its dominant service sector since August 2020, while manufacturing continued to see strong growth.

“Although lockdowns continued to affect the service sector heavily, it has grown again as companies adjusted to living with the virus and prepared for better times,” said Chris Williamson, chief economist at IHS Markit.

The eurozone economy likely contracted in the first three months of the year due to still high infection rates and the slow start of vaccination programs. However, the April survey suggests a return to growth in the second quarter.

Companies appear to be gearing up for activity to pick up. Purchasing managers are reporting the strongest new hires since November 2018, driven by factories where new orders have grown at a record pace.

There are persistent signs that the pace of the global manufacturing recovery was weighing on supply lines, which could prove a drag on growth. In the euro area, companies saw the largest increase in waiting times for deliveries in the survey’s 23-year history, while the prices they paid for their inputs rose at the fastest pace in a decade.

Similar polls from the US late Friday should point to continued strong growth, extensive utility lines and more costly inputs.

Although the vaccination campaigns in Europe have been fraught with supply problems and concerns about side effects, they have gained momentum in recent weeks, making households more hopeful about their prospects. A separate European Commission poll released on Thursday found that consumer confidence hit a pandemic high in April after a surprisingly sharp surge from March.

In contrast to much of Europe, the UK’s vaccination campaign has kept pace with that of the US. This has sparked optimism among businesses and households that the country will be able to reopen much of its economy that was frozen for much of last year by the end of June.

Some restrictions were lifted in April and had an immediate impact on growth. The survey of purchasing managers showed the largest increase in activity since November 2013.

The polls also indicated a recovery in Japan, where activity in the service sector was also subdued. In fact, the composite purchasing managers’ index for the country, which measures activity in the services and manufacturing sectors, rose from 49.9 in March to 50.2 in April, indicating a widening in the first month since the pandemic broke out.

However, a full reopening of the economy is still many months away. The government said Thursday it would restore a state of emergency in Tokyo and other major cities on Sunday after the crowd returned to urban centers and infections increased again. The emergency in Tokyo, Osaka, Kyoto and the prefecture, which includes Kobe, would last 17 days through May 11, covering the Golden Week holidays in the first week of May.

Australia has contained the pandemic more than Japan and Europe, and polls suggest strong economic growth in April. The composite PMI rose to 58.8 from 55.5 in March, the highest since the series began in 2016.

Write to Paul Hannon at [email protected]

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