31 August to 6 September: An uneven global recovery is on the way

The global composite PMI rose to 52.4 in August, with both the manufacturing and services PMIs hovering in expansionary territory. On the aggregate level, it looks like the world GDP could emerge in 3Q20 from the unprecedented slump seen in 2Q20. However, from a geographical point of view, the stabilisation and the subsequent recovery remain uneven. The glass half full interpretation of the latest global PMI report – in our opinion – the global economy is going to improve going forward, unless governments resort to widespread and severe lockdowns again like during the first wave of the pandemic.

The August jobs report in the US drew a lot of attention on Friday. Almost all headlines had positive implications, for example: non-farm payrolls rose 1.37 million (lower than the 1.73 million gains in July), the unemployment rate came down to 8.4% (from 10.2% in July) and labour force participation rose to 61.7% (from 61.4% in July). On the other hand, wage growth remained unusually high at 4.7% YoY. Although the headline itself sounds promising, one could argue that average wage growth is robust only because low(er) paid employees lost their jobs and they are yet to re-join the pool of employed. In addition, the number of permanent job losers rose by 500,000 – a new high. Therefore, one could say that the jobs market has stabilised and shows the initial signs for a sustainable recovery where the pace of which is probably going to be quite slow. This combination could leave policymakers scratching their heads regarding what the best possible course of policy action is– especially just two months before the Presidential elections.

Last week was all about global PMIs and the jobs report in the US. This week, we are going to see a high number of countries releasing their August CPI inflation figures (including the US and China). As long as inflationary pressures remain depressed, central banks – including the ones overseeing EM economies – will have enough room to maintain their historically low (real) interest rates. The European Central’s Governing Council meets on Thursday to discuss the economic outlook and the appropriate monetary policy stance.

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