Intuitively, one might think that the PMI indices, which reflect business confidence and the momentum of business activity, would be set to plummet due to geopolitical tensions and their impact on energy prices. One might also think that the impact is all the greater on energy-intensive businesses, starting with industrial firms. So, what is the situation? Two divergences seem to me worth noting when examining the results for the last three months.
Firstly, as expected, the impact has been less severe in the United States than in Europe. Consequently, the US composite PMI (covering both the manufacturing and services sectors) remains consistent with a healthy expansion in economic activity. In the eurozone, however, it has clearly entered a phase of deceleration, or even contraction, in economic activity. It must be said that the United States is a net exporter of energy. Although it remains dependent on imports of certain grades of crude oil or refined products, US production means that the energy sector benefits from this situation and that gas prices remain, for US companies, much lower than elsewhere. Even if energy prices rise, the impact is clearly less severe than in Europe, and certainly than in Asia.
The industry is still holding out
This brings us to the second divergence: surprisingly, the services PMI indices have fallen more sharply than the manufacturing indices. One would really have expected the opposite to be the case. Two factors may, however, explain this counter-intuitive trend.
Firstly, we know that many industrial firms prefer to anticipate future supply chain issues by building up stocks of finished goods. As a result, industrial activity does indeed increase temporarily. Secondly, whilst the energy price shock is, in absolute terms, negative for US and European companies, they are less affected than their Asian competitors. Indeed, in some Asian countries, energy supplies are already being rationed, which limits production in certain sectors… and thus improves the competitive position of US and European companies.
In short, the damage seems to have been limited so far. But we must remain cautious: only a rapid improvement in the geopolitical situation will enable businesses and households to weather the storm. The global economy simply cannot sustain itself for very long if it is deprived of 5% to 10% of its oil and gas supply.
