HSBC EMI falls for the fourth month to 50.3 in March

Emerging market output growth slows to marginal pace; Output falls in China, India and Russia

April 04, 2014 10:37 IST | India Infoline News Service
The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI surveys, fell for the fourth month running to 50.3 in March, from 51.1 in February, indicating only a marginal increase in private sector output across global emerging markets.
Notably, output contracted since February in three of the four largest emerging economies. China posted a marginal decline for the second month running, while India slipped back into contraction. Meanwhile, Russian private sector output fell at the fastest rate since May 2009.
Emerging market manufacturing output fell for the first time in eight months in March, albeit marginally. Meanwhile services activity rose at the weakest rate since July 2013. A faster increase in Chinese service sector activity was offset by declines in Russia and India.
New business growth across global emerging markets eased to a fractional pace in March, and backlogs of work continued to decline. Subsequently, employment growth remained weak.
Input price inflation in emerging markets hit a nine-month low in March. Russia bucked this downward trend, seeing the strongest rise in input prices in three years – mainly due to the weakening ruble. In contrast, China posted a fall in average input prices for the third month running.
The HSBC Emerging Markets Future Output Index tracks firms ?expectations for activity in 12 months” time. The index fell back in March from February's 11-month high, but was still the second-highest in the past seven months. Manufacturing output expectations weakened while services sentiment improved.
Among the largest emerging markets, Russia posted a substantial weakening in sentiment across both manufacturing and services. The composite series hit a record low, while the outlook in the service sector was the worst since December 2008. China posted a dip in output expectations from February?s 11-month peak, while sentiment in Brazil hit a four-month high.
Frederic Neumann, Co-Head of Asian Economic Research, said, “Emerging markets are going through a rough patch. Lacklustre demand in advanced markets has so far restrained exports. Political uncertainty locally may also be to blame, with elections coming up in key economies, such as India and Indonesia, and geopolitical tensions casting a shadow in Eastern Europe. At heart, however, the synchronized slowdown in emerging markets reflects deeper, structural issues. In China, for example, officials have started ambitious reforms, which in the short-term restrain investment activity and credit access. Slowing Mainland growth is spilling over to other emerging markets as well, primarily to those reliant on commodity exports.
“Although HSBC’s Emerging Market Index dipped further in March, it is important to keep things in perspective. The sub-index on expected future output, for example, a forward looking indicator measuring expectations of production in a year’s time, remains elevated. Also, manufacturers across emerging markets have reported the sharpest pick-up in new export orders in nearly two years. Meanwhile, in the service sector, employers accelerated hiring to the fastest pace in five months. Altogether, emerging markets may be slowing, but growth remains positive for the most part and is likely to stabilize in the coming months.
“Importantly, the Emerging Markets Index highlights that inflation pressures remain subdued. For example, import prices for manufacturers have started to decline again for the first time since June. This will help to ease margin pressure and allows officials in most economies to maintain a relatively accommodative policy stance. While this will not substitute for the need for structural reforms, it will ease the inevitable burden of adjustment ahead. And it is reforms, ultimately, that are required for sustained growth.”

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