The Decisive | Season 4 Ep.6 - PMI in Focus: Economic Signals in the Middle East and Asia

View Full Transcript

Andrew Harker:

Hello and welcome to the latest episode of The Decisive Podcast from S&P Global Market Intelligence. I'm Andrew Harker, an economist at S&P Global and I'm joined today by two fellow economists to take you through some of the most recent findings from the closely watched Purchasing Managers indices. First, we have David Owen. Good afternoon, David, how are you?

 

David Owen:

Afternoon, Andrew. Yeah, I'm doing well, thanks. It's good to be back on the podcast. I'm especially looking forward to talking about some of the latest findings from our PMIs in the Middle East region, especially looking at the UAE where I think there's some quite interesting trends at the moment.

 

Andrew Harker:

And we've also got Usamah Bhatti with us today. So welcome. Usamah, how are you?

 

Usamah Bhatti:

Hey Andrew. I'm good, how are you? Looking forward to being on the podcast today to discuss some of the latest developments in the PMI data that cover the Asia Pacific region and also bringing up one of the new surveys that we've recently launched in Pakistan.

 

Andrew Harker:

Yeah, that's going to be good to get to later on, but first I think let's get started with a look at the JP Morgan Global PMI data to set the scene about what we're going to talk about today. I think it's fair to say that August was a reasonably positive month for the global economy. The composite PMI output index pointed to the strongest rise in worldwide business activity since the middle of 2024, with solid growth in the service sector and a renewed expansion in manufacturing production. Now if we look at some of our regional aggregate data, the improvement was quite broad based as well, so it had stronger growth in output in Asia, Europe and North America. Our global sector PMI Release showed that 18 of the 21 detailed sectors we cover were in growth territory in August and that was the highest for over a year. That overall rise in global output coincided with a solid expansion in new orders, but there was continued weakness in terms of exports, which fell again during the month. Business confidence remained subdued. So we have some caveats to that overall positive picture which I'd like to explore through the episode today.

 

Usamah Bhatti:

It's actually quite interesting that you brought up exports. Looking at the 12 economies that we cover from the manufacturing side in Asia, eight of them, as Andrew mentioned, did see growth in manufacturing production, but there were only four economies at the same time that saw rising exports, as has been the case for the past couple of years. India did lead growth, but there were multiple instances, such as mainland China, in Pakistan and in Thailand, where we saw a rise in output, but that was coupled with a fall in export orders. Japan saw a softer fall in output, largely driven by a softer fall in new orders. At the aggregate level, there was the sharpest fall in exports since March 2024. The other major region in Asia, South Korea, had domestic weakness in manufacturing since 2025. But they hold an interesting position in the global economy, where exports make up 40% of South Korean GDP and the manufacturing sector is deeply integrated into the global supply chain. Any sign of slowing exports could indicate weakening industrial production worldwide as well as a cooling global economy.

It's especially interesting that in August exports fell at the fastest pace since April, which was the initial announcement of from the US and that itself was the fastest since June 2023. There's a common factor between all the surveys that we cover across Asia Pacific, and that came from the anecdotal evidence where a number of firms continued to comment that the implementation and the announcement of US tariffs was weighing on international sales in particular and weighing on global trade conditions.

 

David Owen:

It's good that you mentioned the anecdotal evidence. This is something we can actually track more broadly with our PMI Comment Tracker dataset, which we've mentioned a few times in our podcast. We get a wealth of comments from our survey panelists from around the world. We don't necessarily have to speculate on what is driving business conditions because we can see it from the anecdotals and the comment tracker series. We have specific trackers that measure the number of tariff comments from the manufacturers we survey globally. Now, these trackers cover three main areas that the tariffs tend to impact. Those are exports, prices and business confidence. On exports, we can see from the trackers that the negative impact of US tariffs is still very strong, even when we compare with 2018-2019, when US tariffs were last a major theme in the global economy.

The latest tariff wave is around 10 times more impactful on global goods exports, according to data. This impact is spread across multiple regions. Not only are we seeing trade partners to the US like ones in Europe or Asia seeing a hit to exports, but US manufacturers themselves are also seeing export demand weaken as a result of either reciprocal or the impact that they're having on trade more widely. Now on prices, we can really see from the survey comments how tariffs are leading to higher costs for manufacturers around the world, but particularly in the US. Since April, actually over half of all the comments related to an increase in input costs at US firms have directly referenced tariffs. This compares to just 4% in the eurozone. Yeah, it really shows just how divergent the impact of tariffs are on inflation pressures between these two regions at the moment.

 

Andrew Harker:

Yeah, it's interesting you mentioned about the impact on cost inflation there, David, because we actually spoke about that in a podcast back in July. That big divergence between the PMI prices data for the US and Eurozone. People can listen back to that episode if they want to hear more detail or that something else that we've spoken about quite a bit as one of the impacts of tariffs has been the effect on business confidence and general uncertainty. You mentioned that we have tariff comment trackers covering that as well. So what's happening with those at the moment?

 

David Owen:

Yeah, that's right. The data is still suggesting that tariffs are having a negative impact on business expectations. That said, this has lessened quite markedly since April, which was the peak in terms of the hit to confidence. Many countries have secured deals with the US to maintain a set level of tariffs, which has led to a reduction in business uncertainty. That said, as we did say earlier, overall confidence is still weak and there is still a high degree of concern from businesses that tariffs will restrict trade flows going forwards. I wanted to link this back to the last podcast again, where we did add more color on this when we talked about our Business Outlook survey findings where we did have a special question around tariffs. I would recommend that people go back and have a listen to that podcast. Those findings were particularly interesting insight into the broader narrative that businesses are seeing when it comes to tariffs.

 

Andrew Harker:

Excellent. Yeah, good point, David. We've got lots of information about tariffs and the impact they're having on the global economy. So it's great for people to delve into that and see what's really driving trends in the PMI data. Useful to have that anecdotal evidence from the companies so we can see what's actually happening on the ground. Now, I think Usamah briefly mentioned at the start of the show that we wanted to talk about one of our recent PMI launches so we can get into more detail on the Habib Bank Pakistan PMI, the newest member of our PMI family. It's always great to launch new PMIs and as we've got you on there, Usamah, it's a great chance to talk about it because you're the Pakistan PMI report author. So do you want to give us a bit of a background on the survey and how it works, please?

 

Usamah Bhatti:

So, yeah, as Andrew said, we launched the new Pakistan Manufacturing PMI survey in February this year in association with the BE Bank Pakistan. And it's conducted in line with the rest of our PMI survey. We have a survey panel of about 300 manufacturers ranging from small, medium and large enterprises. We have a coverage across all the major manufacturing sectors, including key sectors in Pakistan which are textiles and food production. It's released alongside our global manufacturing surveys on the first working day of every month. It takes our Asia Pacific coverage to 12 surveys across the region, which is, I think, quite a good balance of all the countries in that specific region that we cover.

 

Andrew Harker:

Yeah, thanks, Usamah. It's one of the beauties of the PMI that we have this sort of standard methodology across all the economies we cover. And so the Pakistan Manufacturing PMIs fitting into that nicely. Another one to add to the stable for our clients to look at with that consistent methodology so people can really compare what's going on there with the other economies that we survey. Can you give us an update on what the data have been saying maybe since the start of this year?

 

Usamah Bhatti:

Yeah, sure. So the latest data that we've been gathering since the start of 2025 are pointing to a gradual slowdown in operating conditions. The latest survey month did show a rise in output in August, but that was largely attributed to the completion of existing orders. We had the sharpest fall in backlogs of work, which are orders that have been accepted but not yet completed. Those fell at the largest extent since the survey began back in May 2024. At the same time, it's clear that the operating conditions have been subdued because there's been four consecutive months of sub-50 readings for new orders and that coincided with a record fall in export orders. As mentioned earlier, in the brief 16-month history, it's still quite a moderate fall in comparison to what we've seen over the last six months especially. At the same time, weaker demand conditions and weaker confidence also meant that businesses have lowered employment levels to the greatest extent in the survey history.

A lot of that comes from anecdotal evidence that we gather from the manufacturing panel, the impact of US tariffs on the sector and the uncertainty of that. But there's also been some mentions across the panel of the impact of flooding that's recently been taking place in Pakistan, which has been starting to show its head in the latest survey data.

 

Andrew Harker:

Yeah, I think people have probably seen or read about that flooding. Pretty terrible events. So you mentioned that's starting to come through. Is it sort of widespread in the anecdotal evidence in August or, you mentioned starting to come through?

 

Usamah Bhatti:

Our survey for Pakistan was conducted between the 12th and 22nd of August. The bulk of the impact of the flooding, especially in the province of Punjab, which is one of the most populous provinces there, and it's also where a lot of businesses are based. That sort of really picked up around 20 August. It's likely that a bigger impact will be seen in the coming months of the survey.

 

Andrew Harker:

Okay. So yeah, something to look out for when next month's figures come through. Over in the episode we've spoken a bit about price pressures and business confluence as well. Can you update us on the latest on those particular topics in Pakistan?

 

Usamah Bhatti:

Of course. The price pressures in Pakistan have been quite a talking point since the survey began because we started out the survey with quite a marked increase in cost burdens, which a lot of manufacturers used to attribute to high utility costs, high electricity costs and also the impact of load shedding, which is where the government would in essence shut off electricity for a set period of time and it would then come back just to help manage the energy production.

 

Andrew Harker:

Isn't it? David from the South Africa survey?

 

Usamah Bhatti:

Exactly. It's more of a widespread issue than people actually think. Since the turn of the year, we have seen a gradual easing of cost burdens on Pakistani manufacturers. It's still showing quite a solid increase in cost burden and operating expenses. That's largely been attributed to higher utility prices, higher levels of taxation, adjusting for some of the tariff increases in price. The increase we saw in August, for example, was one of the latest in the series history. And coming back to the impact of load shedding and taxation, it's actually one of the things that has been brought up in terms of business confidence as well. Firms were hopeful that manufacturing conditions and output would increase over the coming year.

That was attributed to hopes of lowering cost burdens and a settling down of taxation policies. But the overall degree of optimism in August weakened from July and was below the series average since the series began in May 2024.

 

Andrew Harker:

Okay, yeah, that's really interesting. Thanks, Usamah. It's great to get that insight on the new Pakistan PMI and here's some of the details behind it. Hopefully people can look out for that each month published, Usamah mentioned, on the same day as all our manufacturing PMIs around the world. And if people want to know more, they can get in touch with us here for more information: economics@spgrobil.com.

 Now I think it's fair to say we've been on something of a Taylor Swift-esque world tour on our PMI related podcast episodes so far. In March we focused a lot on North America. In May it was Asia. And in July we concentrated on Europe. So in that spirit, we're taking a different region on this episode and looking at our Middle East and North Africa data. David, I'm going to lean on you heavily for this because you write a number of our MENA-based reports so you can really help us out. Please, can you just start off by reminding us what sort of PMI coverage we have in the region?

 

David Owen:

Yeah, sure, Andrew. So we have PMI surveys for six countries in the Middle East and North Africa region, which includes some of the largest economies such as Saudi Arabia and the UAE. Now, it's important to know that these are slightly different from our normal surveys because they specifically look at the private sector. And so rather than just surveying firms in either the manufacturing or services sector, in this survey we combine those two, but also survey companies that are in the construction sector, for example, or in retail. 

Oil is a highly concentrated sector in this region, which means often it's just a few companies. We make the distinction that our survey is just of non-oil companies, which is good because it allows us to focus on this side of the economy. I think these surveys are incredibly valuable for tracking these economies in two ways. Firstly, they focus on the region that is becoming ever more important to the global economy in areas like capital investment or trade or global travel.

Secondly, in some of these countries we might see delays in the release of official statistics, including headline statistics like GDP, inflation, production stats. Often the government statistics office might bring these out several months, up to six or nine months, after the reference period. So by having this PMI data, we can get a much more timely indication of how the economy is performing as a whole, rather than having to wait for official data sets to be released. I think it's a very valuable resource in this situation. 

 

Andrew Harker:

Yeah, that's a great point you make there, David. One of the key rationales for doing the PMI is that timeliness of data and helping policymakers understand the latest trends in the economies, particularly in some emerging markets economies. I think that's definitely valuable because as you mentioned, sometimes official data can be sparse or less timely. Okay, so we've set the scene there. We've got quite decent coverage of the region on our PMIs. Do you want to sort of run through some of the latest developments in the data?

 

David Owen:

Sure. Looking at the region as a whole, we can see from the data that it has been experiencing strong growth recently, especially at the start of this year. However, there are signs that this is starting to slow in a few countries and I just wanted to pick out the United Arab Emirates or UAE, in short, where we've really seen a slowdown in demand momentum over the course of this year. And in August we actually saw new business volumes grow at the softest rate since June 2021. Now, as I said, this softening has been ongoing since the start of the year. And from the anecdotal evidence, we can link this to a number of factors. Firstly, regional tensions have played a part due to the Israel-Hamas conflict and tensions between Israel and Iran as well. This has really impacted businesses through two ways.

The first is customers have been a bit more cautious with their spending, but also have been some delays to supply chains because of the rerouting of shipments away from the Red Sea area due to attacks by the Houthis. Aside from that, firms are also saying that sectors are typically becoming more crowded in the UAE. This means that more businesses are entering different markets. It's becoming more competitive, which is weighing on the ability for businesses to secure new sales as well as raising their prices. But the other important thing that we've noticed from our panelists is, is the impact of client payment delays. This is a long-standing problem in the UAE, amplified since the COVID-19 pandemic. Because many businesses, and especially SME businesses, lack a digital invoicing system, payments from customers can often be up to several months late.

Now, this can disrupt cash flow for businesses, which means that they are unable to spend as freely as they would like, which ultimately, this hits demand levels and makes it harder for firms to complete new work and outstanding work. And actually on outstanding work, we do have a survey question that looks at the volume of backlogs at UAE firms. Now, these are orders that have been accepted but not yet completed. This measure was at a record high at the start of the year and it's still very elevated. Although it has come down a bit. It shows how capacity pressures and delays to payments have made it more difficult for firms to complete backlogs and move on to new orders. To combat this pressure, the UAE government is introducing a national electronic invoicing system. However, this is not due to be rolled out until the middle of next year. 

So we could actually see this trend continue for quite some time.

 

Andrew Harker:

Okay. Oh, that's really interesting and something to watch out for. Hopefully that sort of electronic system they're bringing in will alleviate some of those pressures next year. Interesting as well, you mentioned about competitive pressures. That's something I see quite a lot in the Q8 PMI with companies looking to limit price rises to keep securing new business. One of the other big economies in the region is of course Saudi Arabia. So can you provide us with some insights on the latest data there as well, please?

 

David Owen:

Yeah, sure. So we conducted Saudi Arabia PMI in association with Riyadh Bank and again, like the others, this looks at the non-oil economy in the country. Now obviously oil is quite an important part of the Saudi Arabian economy, which is also the largest economy in the region. But the government is focused on developing its non-oil sector as part of its economic program called Vision 2030. This survey is quite interesting to watch. Looking at the latest results, similar to the UAE, we have seen growth soften a bit in Saudi Arabia. The PMI's latest reading was 56.4.

This is still quite a strong reading and one of the best readings out of all the countries we look at globally. Overall business conditions are very strong. We've seen sharp increases in employment in the last few months with that metric near record highs. And yeah, many of the firms that we survey say that they've been recruiting for new projects, but also trying to build out their skills bases, which does suggest that there's more room for businesses to grow. So still a fairly positive picture in Saudi Arabia.

 

Andrew Harker:

Yeah, it does sound pretty positive overall. I wanted to mention Lebanon where the BLOMINVEST Bank PMI pointed to an improvement in business conditions for the first time in six months in August. We had higher output and new orders, plus quite a good pickup in business sentiment there. Obviously it's an economy with many challenges, but hopefully some signs of improvement in more recent months in Lebanon. So, well, looking at the clock, that's all we've got time for today. Thanks to both David and Usamah for your contributions. We'll be back on The Decisive Podcast in November when our regular host Paul Smith should be back to lead us through the PMI Data Insights as 2025 draws to a close. Thank you for listening.