May global trade conditions subdued despite stock-building: S&P GMI

The seasonally adjusted global PMI new export orders index, sponsored by JP Morgan and compiled by S&P Global, rose to 48 in May, up from 47.5 in April.

Posting below the 50 neutral mark for a second consecutive month, the latest reading indicated that trade activity contracted modestly again.

Despite easing since April, the rate of decline was the second-fastest in the past 20 months, reflecting still-subdued trade performance, an analysis by Jingyi Pan, economics associate director at S&P Global Market Intelligence, said.

The manufacturing sector's export contraction persisted in May, albeit at a slower pace compared to April, when higher US tariffs had been announced.

The pace at which goods export orders fell was among the fastest in recent months, reflecting a backdrop of softening manufacturing sector conditions: the PMI's forward-looking new orders index signalled weakening global demand, registering the sharpest reduction in new work at factories since last October.

While stock building efforts at manufacturers (notably in the US) had helped to alleviate the fall in export orders in May, as seen via the first rise in global stocks of purchases in just over two-and-a-half years, it is uncertain how much longer the front-loading of goods orders ahead of higher US tariff implementation will last, posing a downside risk to output and trade flows in the months ahead, Jingyi noted.

Manufacturers' confidence picked up in May from April's low following the announcement of US tariffs on April 2. Optimism among global goods producers improved for the first time in three months. Hopes for better global trade conditions and less uncertainty reportedly drove the pick-up in sentiment.

Regionally, May's PMI data alluded to another month of broad-based deterioration in trade conditions, but was led by emerging markets for the first time since May 2022.

Developed economies saw export orders deteriorate at a more modest pace in May, though this was largely underpinned by an alleviation of conditions in the United States, Jingyi wrote.

After falling at a solid pace in April, US export orders contracted only marginally amidst renewed goods exports growth. The improvement in US goods export conditions supported the slower fall in in developed markets goods exports.

The number of top ten trading economies reporting higher goods exports rose from one to two in May, with the United States joining India in expansion territory. But the rate at which US goods exports rose was only marginal, paling in comparison with overall US new orders growth, which was buoyed by unprecedented inventory build-up amid tariff worries.

India meanwhile saw another sharp rise in export orders for goods in May, but the rate of expansion eased in tandem with overall new orders.

On the other hand, Canada and the United Kingdom led the downturn in goods trade with especially sharp reductions in export orders, even though the rates of decline eased in both cases compared to April. Tariffs and elevated trade uncertainty remained the key dampener for export performance for both the nations.

More moderate rates of contraction in export orders were observed for China and Japan, the former notably falling at the quickest pace in nearly two years.

Marginal rates of reduction were observed for the remaining economies: South Korea, Brazil, the European Union and Russia.

ALCHEMPro News Desk (DS)