IHS Markit reports that russia’s invasion of Ukraine has hit #business#confidence across much of the world bigger than anything recorded over the last decade, with the sole exception being the onset of the pandemic.
Geopolitical instability, commodity price volatility and supply-chain disruptions all acted to dampen business optimism, particularly in Europe. This marks a big turnaround from the start of the year when firms were increasingly optimistic that the COVID-19 pandemic would be much less disruptive in 2022 than in the preceding two years.
➖ Optimism slides to 15-month low
Purchasing Managers’ Index (#PMI) data are compiled by IHS Markit for 45 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies. The JPMorgan Composite PMI Future Output Index was down 4.3 index points in March. Business optimism waned across both the manufacturing and service sectors, dropping to 18- and 13-month lows respectively.
📌 Of the 45 countries covered, some 84% saw business confidence decline between February and March following the russian invasion of Ukraine. Most of the largest downgrades to expectations were seen in European countries, where the economic links to Ukraine and russia are strongest. In fact, all 12 European countries covered by PMI saw sentiment decline, including UK (-5%), Poland (-7%), France (-9%), Germany (-12%), Czech Republic (-19%), russia (-23%) with the region as a whole seeing confidence drop to a 17-month low.
➖ Output growth is more resilient
In fact, while business confidence dropped sharply in March, trends in output were generally more resilient, reflecting the further reopening of economies from pandemic-related restrictions on economic activity. The JPMorgan Global Composite PMI signalled a solid increase in current output that was only slightly softer than seen in February. Even in Europe where confidence dropped steeply the rate of output growth remained sharp, softening only marginally from February as less stringent COVID-19 restrictions rejuvenated service sector performance. Services activity in Europe even expanded at the fastest pace since August last year.
📌 This divergence between current output growth and business expectations suggests that the slump in sentiment is more reflective of what companies expect to face in the months ahead rather than current conditions, but also implies that output growth could slow during the second quarter of the year as the impacts of the war and associated sanctions start to bite.
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