Global PMIs Signal a Two-Speed Economy — Growth Is Alive, But It’s Not Evenly Distributed

January’s flash PMI data offered a clean snapshot of where the global economy is starting 2026: growth is still expanding, but the leadership is uneven, inflation pressures are re-accelerating in key places, and the biggest swing factor remains trade and capacity constraints. Across Japan, India, the Eurozone, and the UK, the takeaway isn’t “global expansion is booming” — it’s that the world is running a two-speed recovery where some regions are gaining traction while others are stuck in low-growth mode with uncomfortable inflation dynamics. That matters for markets because PMIs tend to lead both earnings expectations and central bank posture. And right now, the PMI map looks less like a synchronized cycle and more like a patchwork.

Japan stands out as one of the more interesting “upside surprises” to start the year. The Flash Japan Composite PMI Output Index jumped to 52.8 in January from 51.1, marking the fastest pace of expansion in 17 months and extending the growth streak to ten consecutive months. The momentum was services-driven — the Services PMI rose to 53.4 from 51.6 — but the more notable shift was manufacturing turning positive again. The Manufacturing PMI improved to 51.5 from 50.0, confirming a return to expansion, while manufacturing output rose to 51.2 from 49.9, the first increase in seven months. Japan isn’t just “stable” here — it looks like demand is pulling forward, which matters given Japan’s role as both a global industrial bellwether and a key marginal driver of cross-border capital flows.

Under the hood, Japan’s demand metrics were even more compelling than the headline PMI itself. New business growth hit the fastest pace since May 2024, services saw the strongest new work growth in four months, and manufacturers posted their first sales increase since May 2023. Foreign demand also returned to growth for the first time since last March, including the first rise in manufactured goods export orders in nearly four years. That export shift is a big deal because it suggests global trade isn’t collapsing — and it supports the idea that supply chains and cross-border demand may be improving at the margin. The red flag, though, is capacity strain: outstanding work rose at the fastest pace in the survey’s history, employment jumped at the sharpest pace since April 2019, and price pressures remained intense. Japan is growing, but it’s growing with constraint-driven inflation risk — a mix that can quickly become a central bank problem.

India, meanwhile, continues to look like the global growth leader — and it’s not particularly close. The HSBC Flash India Composite Output Index rose to 59.5 in January from 57.8, signaling sharp expansion that remains well above the long-run average. Both services and manufacturing improved in a balanced way, but manufacturing delivered the “headline pop.” Services activity rose to 59.3 from 58.0, while manufacturing output jumped to 59.9 from 57.3 and the broader Manufacturing PMI climbed to 56.8 from 55.0. The consistent message is that India’s private sector is re-accelerating after a softer December, driven by faster new business intake and broad-based demand strength.

The trend detail in India is the part that makes it feel durable rather than just “hot.” Hiring resumed after flat payrolls in December, firms cited staffing additions to align resources with demand, and export orders posted the biggest increase in four months. Companies pointed to demand coming from across Asia, Europe, Australia, Latin America, and the Middle East — suggesting this isn’t just domestic consumption pulling the economy forward. Inflation pressures were described as “moderate,” but input costs accelerated to the fastest pace in four months and output price inflation also ticked higher, as firms passed through higher labor, transport, and materials costs. Translation: India’s growth engine is still running hard, but the cost side is creeping up again — which keeps the “how long can this run without policy friction?” question on the table.

The Eurozone is the opposite story: it’s expanding, but the pace is soft enough that it still feels fragile. The HCOB Flash Eurozone Composite PMI Output Index held at 51.5 in January, unchanged from December, extending the private sector’s growth streak to 13 months — but only at a modest rate. The internal mix improved slightly as services cooled (Services PMI at 51.9 vs. 52.4) while manufacturing output finally tipped back into expansion (Manufacturing Output Index at 50.2 vs. 48.9). That’s an important milestone because manufacturing has been the Eurozone’s biggest drag, and stabilization there reduces recession risk. But it’s not a “rebound” yet — it’s more like the patient stopped getting worse.

The weak spot for Europe is the labor market and the inflation mix. Employment fell for the first time in four months, and the decline was the most pronounced in almost a year. Germany saw particularly sharp staffing reductions, while manufacturing job cuts continued and services hiring flattened. Meanwhile, inflation pressures moved the wrong way: input costs accelerated for a third straight month, manufacturing cost inflation hit the fastest pace in three years, and output prices rose at the strongest pace since April 2024. That combination — weak growth and re-awakening inflation — is uncomfortable for the ECB, because it limits how aggressively policy can lean supportive without risking credibility on price stability. The Eurozone is moving forward, but it’s moving forward on thin ice.

The UK is the cleanest “growth rebound” story of the group, though it comes with its own complications. The UK Composite Output Index jumped to 53.9 from 51.4, a 21-month high, signaling the strongest private-sector expansion since April 2024. Services led the rebound, with the Services Business Activity Index rising to 54.3 from 51.4, while manufacturing improved too, with the Manufacturing PMI up to 51.6 from 50.6. The standout was exports: goods export orders reportedly rose for the first time in four years, with stronger demand noted from Europe, the U.S., China, and emerging markets. The UK picture looks more upbeat than Europe’s, suggesting the UK is getting traction at the exact moment the Eurozone is still stuck in “grind higher” mode.

But the UK’s problem is the same one that keeps popping up globally: costs and productivity. Despite stronger activity, employment fell at an accelerated pace, especially in services, as firms tried to cut expenses amid rising payroll costs. That’s a key signal — businesses are seeing demand improve, but they’re still reluctant to expand headcount because margins feel pressured and labor costs are rising. Inflation pressures stayed sticky as well, with input costs elevated and selling prices rising at the fastest pace since August 2025. For the Bank of England, that creates a tough tradeoff: growth is improving, but the inflation “all clear” still isn’t here.

Stepping back, the global PMI message is clear: the world economy is expanding, but not in a synchronized way. India is powering ahead with broad demand strength and improving exports. Japan is gaining momentum but is running into capacity strain and inflation pressure. The Eurozone is stabilizing, but growth remains fragile and job cuts are returning at the same time inflation heats up. The UK is re-accelerating, but employment softness and sticky pricing pressures complicate the outlook. The key macro themes to track from here are trade (export orders are improving in multiple regions), inflation (input costs are re-accelerating, especially in Europe), and productivity/capacity (Japan’s backlog surge is a flashing signal that the “growth vs. inflation” tension is returning). The next few PMI prints will matter less for “are we growing?” and more for “is the growth clean enough to let central banks ease?” — because right now, the global economy looks alive… but still annoyingly expensive.