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World - Rates of expansion in output and new business slow

07 July 2011

Growth of both global output and new business eased in June 2011, following modest accelerations in the previous month. The 'Global All-Industry Output Index' compiled by research firm Markt on behalf of JPMorgan dipped to 52.2, from 52.7 in May, its second-lowest reading since the recovery began in August 2009.

The headline index has nonetheless remained above the neutral 50.0 mark, signalling expansion, for almost two years. However, the latest Purchasing Managers Index (PMI) data also provided further evidence that the global economy has downshifted to a slower gear towards the middle of the year. The average output index reading in Q2 was 52.3, down sharply from the post-recession high of 57.3 seen in Q1.

June PMI data pointed to modest decelerations in output growth in both the manufacturing and service sectors. The rate of expansion in manufacturing production slowed for the fourth month running to its weakest since June 2009. Service sector business activity growth, meanwhile, eased following a slight acceleration in the previous month. In both sectors, rates of increase during Q2 2011 were well below those reached in the opening quarter of the year.

National data signalled a broad-based slowdown, with rates of all-industry expansion slowing in the US (22-month low), the Eurozone (20-month low), China (weakest of current 27-month run of growth), India (nine-month low), Brazil (eight-month low) and Russia (seven-month low). Growth picked up slightly in the UK, while the rate of contraction continued to ease in Japan. Within the Eurozone, the recovery remained uneven. Solid expansions in Germany and France contrasted with renewed contractions in Italy and Spain.

Slower growth of output reflected a similar easing in the rate of expansion of incoming new business. June saw new orders rise at the second-weakest pace since the recovery began in August 2009. Inflows of new work moderated in both the manufacturing and service sectors.

Job creation was recorded in the global economy for the fifteenth consecutive month in June. The rate of increase in employment was above the average for this period, with solid additions to payroll numbers signalled at both manufacturers and service providers. The steepest increases in all-industry employment were seen in Germany and the US.

June saw further marked inflation of average input prices. Following recent falls in the cost of a number of commodities, however, the rate of increase was the weakest since last September.

David Hensley, Director of Global Economics Coordination at JPMorgan, commented "the PMI data confirm that global GDP growth eased sharply in the second quarter, as the average rate of expansion slipped to a post-recession low after reaching a recovery high in Q1. The slowdown has been broad-based across both manufacturing and services. Job creation has exhibited a higher degree of resilience, however, and this may boost consumer demand when combined with lower inflation."

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