Macquarie Research, Rebalancing in a boom

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Unconventional Wisdom
Rebalancing in a boom
Event
 Manufacturing PMI surveys for February were released.
Impact
 The global manufacturing PMI has hit its highest level since 2004 and the
level is consistent with a manufacturing boom. There are, however, two
important differences.
 In 2004 the Federal Reserve tightened monetary policy. This is not going to
happen in 2011 and so it is more likely that the boom will be sustained.
 Just as important is the strength in developed economies. This is not a boom
solely based on a runaway Chinese economy and the rebalancing global
economy is another factor that will help sustain the boom.
Analysis
 Unrelenting strength in manufacturing PMI surveys in the developed
economies is one of the early positive surprises in 2011. Despite weaker
results in China, the jump in the US and Europe plus some signs of an upturn
in the Japanese survey have pushed the global manufacturing PMI to its
highest level since 2004. So much for the double-dip forecasts.
 Perhaps the biggest surprise is the resiliency of the Euro Area and UK PMI
surveys. The UK index is now marginally higher than the US index and the
survey of the Euro Area shows that last year’s crisis only dented the rising
trend. All three surveys are at or above the peaks of the previous decade.