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19 May 2017

A rising tide lifts all

A rising tide lifts all A rising tide lifts all, suggests Andrew Allcock
Last month (April), London-headquartered technology supplier representative organisation the Manufacturing Technologies Association (MTA) divined more positive meaning from manufacturing-related indices than did the mainstream UK media.

The organisation observed that the UK Purchasing Managers Index (PMI –, while having edged down for March, was still, at 54.2, strong. “The somewhat negative headlines in some of the media were not really justified,” the MTA said. And it went on to look more widely.

The organisation noted that the Euro-zone saw its PMI reading pick up in March, reaching its highest level in nearly six years, at 56.2. Both Germany (58.3) and Italy (55.7) were at long-term highs and France (53.3) also saw its PMI level pick up, compared to February. Sweden (65.2), Switzerland (58.6) and Hungary (56) were noted, while just three countries fell below the 50.0 mark: South Korea, Brazil and the Euro-zone’s Greece.

This broadly-based positive PMI situation is, in fact, a reflection of a global trend, as detailed in The Economist of March 18-24 in its report ‘The world economy’s surprising rise’. While also pointing to the positive PMI figures, the magazine detailed the activity underlying them, saying: “This week the Fed [US central bank] raised rates for the second time in three months – thanks partly to the vigour of the American economy, but also because of growth everywhere else. Fears about Chinese overcapacity, and of a yuan devaluation, have receded. In February, factory-gate inflation was close to a nine-year high. In Japan in the fourth quarter capital expenditure grew at its fastest rate in three years. The euro area has been gathering speed since 2015. The European Commission’s economic-sentiment index is at its highest since 2011; euro-zone unemployment is at its lowest since 2009.”

It continued: “The bellwethers of global activity look sprightly, too. In February, South Korea, a proxy for world trade, notched up export growth above 20%. Taiwanese manufacturers have posted 12 consecutive months of expansion.”

In terms of capital expenditure on such things as machine tools, which MTA members supply, mostly to the UK, The Economist points to an underlying rule, that investment rises in line with company profitability; and the latter is on the up at around 8% (globally, quarter on quarter, annualised). Locally, profitability of manufacturing companies increased from 11.8% in Q3 to 12.7% in Q4 2016, the ONS said in April.To quote The Economist again: “Today, almost 10 years after the most severe financial crisis since The Depression [1929-1939], a broad-based economic upswing is at last under way.” So, while PMI figures may, month by month, go up or down, there is an underlying global rising tide that should ‘lift all boats’.

First published in May 2017, in Machinery

Andrew Allcock

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