Thursday March 7, 2013

Sluggish emerging markets

February growth slows, lead by manufacturing and services

LONDON: Growth across emerging markets including China and India slowed in February, according to a monthly purchasing managers' index, which hit its lowest level since August.

India, Brazil and China all saw growth rates decline after a strong increase in January, according to the HSBC Emerging Market Index, published yesterday. The slowdown was evident in both manufacturing and services.

Investors are eyeing closely whether emerging markets can continue to grow despite strong headwinds from a slow global recovery, with particular concern surrounding a possible slowdown in the Chinese economy.

The HSBC PMI index, based on purchasing managers' surveys of 16 emerging economies, fell to 52.3 from 53.8 in January but remained above the crucial 50 level which signifies overall expansion.

“The slowdown appears to be broad-based across manufacturing and services, with BRIC activity moderating after a promising start to the new year,” said Murat Ulgen, chief economist at HSBC.

New orders slowed to their lowest rate in six months, while employment growth slipped to a three-month low.

Despite slowing growth, expectations among firms for output over the next 12 months hit its highest since May 2012, according to an index measuring business sentiment compiled by HSBC.

Business expectations in China, the world's second-largest economy, perked up, with sentiment reaching its most positive since April 2012.

Ulgen said he saw two possible paths ahead for emerging economies.

“Either the emerging markets will wobble along, buffeted by worries in the developed world,” he said.

“Alternatively, the current slowdown will prove temporary, as the inventory cycle works its way through and improved underlying fundamentals bring back the days of strong growth.”

Ulgen said he leant towards the second theory, pointing to strong sentiment towards future output.

“Our hopes are mainly pinned on China, Asia and commodity producers in the Middle East, as Latin America and central and Eastern Europe are yet to show more convincing strength,” he said.

Mexico, whose manufacturing revival has been lauded by investors, saw the slowest rate of manufacturing growth in over a year, with growth in output and new orders both dropping off.

“The emerging world needs China to keep a strong pace of expansion,” said Pablo Goldberg, global head of emerging markets research at HSBC. Reuters

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