Russia, China drag global growth to 670-day low, inflation record high

Growth elsewhere was encouragingly resilient, losing only marginal momentum in April on average, linked to loosened COVID-19 restrictions. The United States, eurozone, the United Kingdom, India and Brazil continued to report strong growth.

However, the war and new lockdowns in China have worsened existing supply chain and inflation trends, leading to record selling price inflation for goods and services globally in April. Growth was also uneven, with a renewed manufacturing decline leaving growth reliant on services, London-based IHS Markit said in a press release.

The outlook is mixed, with some near-term support likely from a further strong rise in global backlogs of orders in April, but business confidence about the outlook has been knocked further by the events of the month, hinting at lower demand growth fundamentals.

The JPMorgan manufacturing PMI fell from 52.7 in March to 51.0 in April. The drop in the index signalled the weakest pace of economic growth since the start of the recovery from the initial pandemic lockdowns in early 2020.

While an easing of COVID-19 containment measures on average globally helped to sustain service sector growth in April, the rate of expansion in the service sector fell to the second weakest seen over the past 15 months. Adding to the deteriorating picture was a renewed decline in manufacturing output, which fell in April for the first time since June 2020.

The two key drivers of the slowdown during April were the ongoing Russian invasion of Ukraine and the continued lockdowns in mainland China, as the authorities persisted in their efforts to contain COVID-19 outbreaks.

Russian economic activity collapsed for a second successive month as war sanctions curbed business activity. Although the month-on-month decline was somewhat less steep than had been signalled in March, it was still the second largest drop in Russian output recorded since the global financial crisis with the exception of the initial COVID-19 outbreak. Both manufacturing output and services activity fell sharply again in Russia during April, IHS Markit said.

China likewise saw a second month of slumping output in both manufacturing and services, though in China's case the rates of decline accelerated to highs exceeded only by the collapse in output seen in February 2020.

China's slowdown has been the result of COVID-19 containment measures having been tightened in April to the most stringent seen so far in the pandemic. In contrast, a loosening of restrictions helped boost output in India and Brazil, the former enjoying the best expansion for five months and the latter more notably recording the strongest growth surge since late-2007.

Japan meanwhile saw March's tentative return to growth gather a little more momentum to register the fastest—albeit still modest—growth since December.

Developed markets were by no means immune to the effects of the war in Ukraine and China's lockdowns, however, with a resulting lengthening of supply chains hampering manufacturing growth most notably in the eurozone, where production growth almost stalled, and in Japan, where output growth remained only modest.

In contrast, a strengthening manufacturing sector was evident in the United States and, to a lesser extent, the United Kingdom.

A further effect of the Ukraine war and China's virus outbreaks was evident in a surge in inflationary pressures, notably via higher gas and oil prices but also through a broader intensification of supply chain delays and accompanying price hikes, which—alongside a further reported rise in wage pressures in many markets—led to increased prices for a wide variety of goods and services.

ALCHEMPro News Desk (DS)