Global Growth Near Two-Year High At Start Of 2017

Rates of cost inflation accelerated in both manufacturing and services, widely linked to higher oil and other commodity prices, and notably for fuel and energy.

Especially strong cost increases were seen in the UK and Eurozone, with high commodity prices exacerbated by weak exchange rates against the US dollar.

Average prices charged for goods and services meanwhile rose as firms increasingly passed higher costs on to customers. While selling price inflation eased slightly compared to December, the rise was nevertheless still the second-largest in over five-and-a-half years.

Robust growth was again seen across the major developed economies, led by the US. Markit’s US PMI surveys showed the strongest rate of expansion for 14 months. Growth accelerated in both services and manufacturing despite the strong dollar continuing to act as a drag on exports. The January PMIs are broadly consistent with the US economy growing at an annualised rate of 2.5%. Optimism about the business outlook in the US has also risen to the highest for over a year-and-a-half.

The rate of growth signalled by the UK PMI surveys slipped below that of the US, albeit by a small margin, linked mainly to a weakened rate of expansion in the service sector. Manufacturing reported the largest gain in production for almost three years. Despite the slowing in January, the UK surveys are consistent with the economy growing 0.5% at the start of the first quarter. Optimism also rose to an 17-month high.

The January Eurozone PMI indicated that the region is growing at the fastest rate since mid-2011, comparable to GDP rising at a quarterly rate of 0.4%. Employment growth accelerated to the highest since 2008 amid brighter prospects as firms shrugged off political uncertainty. Business confidence about the year ahead was the highest since the series started in July 2012.

The Nikkei Japan Composite PMI meanwhile dipped in January but remained indicative of a steady improvement in the health of the Japanese economy. Encouragingly, the latest surveys showed growth of new orders to have accelerated to the fastest in three years, with optimism about future output surging to the highest in 17 months. The upturn prompted Japanese companies to continue growing their workforce numbers, with January seeing the strongest monthly employment growth for over two-and-a-half years.

Russia recorded the strongest rate of expansion of the major emerging markets, with the PMI reaching its highest since June 2008. China’s growth rate meanwhile eased from the near four-year high seen in December, with the Caixin composite PMI dropping to a four-month low, albeit remaining elevated by recent standards. More encouraging was the index of future output expectations, which reached its highest in ten months.

India’s economy showed signs of stabilising after the downturn cause by disruptions emanating from demonetisation, according to the Nikkei PMI, but Brazil’s contraction deepened again, with the composite PMI down to a five-month low and indicative of a further severe decline in business activity.