Emerging market growth at six-month low in November
Key points
• HSBC Emerging Markets Index: 51.2 (prior 51.5)
• Chinese growth remains weak
• Output falls further in Russia and Brazil
Output growth in global emerging markets slowed further in November, according to HSBC survey data. The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMITM surveys, slipped for the second month running to 51.2, signalling the weakest rate of expansion since May. The EMI remained well below its long-run trend level of 53.7, and 2014 looks set to record the lowest annual average for the Index since its inception in November 2005.
Manufacturers and service providers in emerging markets both registered slower, identical rates of output expansion in November.
Data for the four largest emerging economies showed contrasting activity trends in November. China registered growth for the seventh month running, but at the weakest rate since May. India posted the fastest growth since June, while Russia and Brazil both registered sharper rates of decline.
On a brighter note, new business growth picked up from October's five-month low, with both manufacturing and services showing faster rates of expansion. That said, backlogs of work fell at the fastest rate since July 2013 and employment declined for the first time since May.
Inflationary pressures remained subdued in November. Input price inflation edged up to a three-month high, but remained historically weak. Output prices rose following October's decline, but at only a marginal rate.
Business expectations
The outlook for global emerging markets deteriorated in in November. The HSBC Emerging Markets Future Output Index, which tracks firms' expectations for activity in 12 months' time, fell to a new record low since its inception in April 2012. All four of the largest emerging economies posted weaker sentiment in the latest period, most notably Russia and Brazil. China posted the lowest output expectations since the composite manufacturing and services series began in April 2012. Meanwhile, Saudi Arabia and the UAE saw non-oil output expectations moderate during November, while South Africa registered the strongest sentiment in over two years. Continued on page 3...
Comment
Chris Williamson
Chief Economist, Markit
"The world's main emerging markets remain shadows of their pre-crisis selves in terms of growth rates, and once again acted as a drag on the global economy in November. Downturns in Russia and Brazil are intensifying to worrying extents, and China's economic growth rate continues to slow. Only India saw an improvement in November.
"After economic growth slowed to 7.3% in China in the third quarter, its weakest since early-2009, the surveys signalled a near-stagnation of growth to a six-month low in November, adding to the likelihood of the government failing to meet its 7.5% growth target for the year. The expectation is for it to probably aim even lower in 2015.
"Brazil and Russia are meanwhile seeing the steepest rates of decline since the height of the global financial crisis.
"While Brazil pulled out of recession in the third quarter, the PMIs already point to a renewed downturn in the fourth quarter. The headline PMI for Brazil has sunk to its lowest since May 2009.
"Russia's downturn has also deepened as service sector business contracted at the sharpest rate since May 2009. Some respite came from an increase in manufacturing production, reflecting import substitution following the sharp drop in the rouble and trade sanctions, but business optimism has collapsed to a six-year low. Russia faces the unenviable combination of economic contraction and spiralling prices."
Regional highlights: www.twitter.com/HSBC_EMI_PMI
Simon Williams
Chief Economist, CEEMEA
"A strong month for the oil importers, with Turkey to the fore. The Gulf oil states are softening, Russia is suffering"
Frederic Neumann
Co-Head of Asian Economic Research
"Hard to detect a big lift. Exports still look wobbly. Good news is that input costs are coming off, signalling improving margins. Asia isn't yet on the mend."
Andre Loes
HSBC Chief Economist, LATAM
"Brazil to end the year on a very weak note, tumbling to levels last seen on 2Q2009, while Mexico manufacturing keeps accelerating"
Manufacturing
November data signalled a further loss of momentum in China's manufacturing economy, with output declining for the first time since May, albeit marginally. Meanwhile, total new orders increased for the sixth month in a row, though the rate of growth was only modest. Data suggested that softer client demand from abroad had partly dampened overall growth of new work. Meanwhile, input and output prices both declined.
Taiwanese manufacturers signalled a further loss of growth momentum in November, with output, new orders and new export orders all expanding at weaker rates over the month. Meanwhile, new orders declined at South Korean manufacturers, alongside a further deterioration in production.
The latest PMI data painted a bleak picture for Indonesian manufacturers in November, as operating conditions worsened at the fastest overall rate in the survey's 44-month history. Output, new orders and employment all declined during the month. In contrast, growth in the Vietnamese manufacturing sector regained momentum in November as output and new orders rose at faster rates and stocks of purchases increased at the sharpest pace in the survey's history.
Manufacturing operating conditions in India improved in November, supported by stronger growth of output and new work intakes. Foreign orders and buying activity also rose while employment remained broadly stable. However, inflationary pressures intensified.
November data for the Brazilian manufacturing sector revealed sharper reductions in output and employment. New business also continued to fall, while inflationary pressures re-emerged during the month.
November data signalled a solid upturn in the Mexican manufacturing sector, driven by sharper rises in output and incoming new business. Input buying and inventories were boosted but backlogs of work continued to decline, suggesting a lack of pressure on operating capacity.
Turkey's manufacturing sector continued to exhibit positive momentum in November. Growth of output and new business accelerated for the second month running, reaching the fastest since February. Meanwhile, employment increased at the fastest rate since October 2013.
The Russian manufacturing sector registered stronger growth of output and new orders in November but inflationary pressures surged as a result of the weakening currency. Input prices rose at the fastest rate in over 16 years, leading to the fastest increase in factory gate charges since March 2011. New export orders declined for the fifteenth month in a row.
Output and new business in the Polish manufacturing sector rose at faster rates in November, while new export orders increased for the first time since April. Meanwhile, new business received by Czech manufacturers from export markets increased at the fastest rate in six months, helping to boost overall new order growth and spur job creation.
Middle East & Africa
The UAE non-oil private sector economy continued to record a marked improvement in business conditions mid-way through the final quarter of 2014. The overall strength of the current upturn lost some momentum from October's survey-record pace, but nevertheless remained substantial. Cost pressures meanwhile eased to a 17-month low, with both purchase prices and labour costs rising more slowly.
Growth of Saudi Arabia's non-oil private sector economy was sustained during November, but at a slower pace as output, new orders and employment all increased at weaker rates.
Egypt's non-oil private sector companies reported further growth of output and new orders in November, but the rates of expansion slowed and were marginal. Employment levels also increased fractionally and companies were able to further reduce their backlogs. Meanwhile, firms lowered their selling prices for the first time in five months and input costs rose at one of the slowest rates in the survey's history.
November data signalled a continuation of the upturn in South Africa's private sector that started in August. That said, growth of output and new orders eased to the lowest in three and four months respectively. Growth of new export orders remained subdued in November.
Business expectations
The Composite Future Output Index for Russia sank to a new low in November, on the back of the worst expectations in the service sector since December 2008. Around 31% of service providers expect activity to contract over the next 12 months, linked to an expected economic slowdown, potential credit and currency crises and the impact of sanctions.
Among manufacturers, output expectations were strongest in Indonesia, Vietnam and Mexico, while the weakest sentiment was registered in Brazil, South Korea and Taiwan.