The chart below is the Global manufacturing PMI of major economies over the last one year. As most of you know, a reading above 50 is expansion and below 50 is a contraction. We are seeing clear signs of weakness in Germany which derives most of its GDP through manufacturing exports. China is hovering around 50 inspite of huge credit creation this year, starting in early February, showing signs of a slowdown in global demand and lack of domestic demand. The US is by far the strongest and in my view, the reason is inventory building to beat tariffs and a relatively stronger manufacturing sector as compared to the rest of the world. But I think the best of US Manufacturing PMI is behind us as inventory needs to be drawn down before it can be rebuilt again. This is against the backdrop of less than 4% unemployment in the US. India is facing its own election and the recent data from consumer discretionary and Industrial production is not positive.

All these major countries are already getting some helping hand from either monetary or fiscal policy with US running a trillion dollar deficit, Germany getting extreme monetary support from ECB, China throwing fiscal kitchen sink to get some growth and even lending money through MLF facilities to its bank so that it flows into the real economy. India is having a compliant central bank governor who is helping on the monetary side and on the fiscal side a shortfall in tax collection to the tune of almost USD 15 billion acts like a fiscal stimulus.

Even after all this, Global manufacturing activity refuses to pick up. The reason is, we have reached a point where any addition in debt does not lead to an increase in productivity or generation of economic activity. This is when the world economy reaches a tipping point known as secular stagnation.