Emerging market growth quickened in the final quarter of 2010, rebounding from a temporary lull in the third quarter and accentuating the growth gap between emerging and developed nations, the HSBC Emerging Markets Index (EMI) shows.
The EMI rose to 55.7, from a five quarter low of 54.2 in the preceding quarter, above the long-run series average of 54.7. Nonetheless, the pace of expansion remained slower than rates recorded in Q4 2009 and H1 2010.
The uptick in emerging market growth primarily reflects a rebound in manufacturing activity, as service sector growth held steady in the final quarter. Rates of expansion were almost identical across both sectors.
“The sting in the tail comes from inflation. Not since the food and energy scares seen in the early months of 2008 have the cost and price components of the EMI touched such worrying levels. Whether policymakers in the emerging world can tame inflation is one of the big issues for investors to confront in 2011. With most emerging nations reluctant to significantly raise interest rates and inflate their currencies, attention will turn to the impact of ‘quantitative tightening’ measures such as Hong Kong and China’s recent attempts to restrict the supply of credit,” says Stephen King, HSBC’s Chief Economist.
Manufacturing output rose across Eastern Europe, with the Czech Republic, Poland and Turkey all recording substantial rates of growth in Q4. Both China and India recorded sharp and accelerated rates of expansion that were the fastest in three quarters. In contrast, manufacturing output growth was only marginal in Taiwan and stagnated in South Korea.
The performance of emerging market manufacturers improved in line with an uptick in new export order growth. Of the big-four emerging markets, India recorded by far the strongest increase in new export business. China recorded modest growth (fastest in three quarters), but falling exports were indicated in Brazil and Russia.
In the emerging market service sector, activity growth remained substantial in India, despite easing to a four-quarter low. China also recorded a slowdown in output growth (eight-quarter low). Conversely, Russia saw a strong acceleration in growth and despite quickening to a three-quarter high, Brazilian service sector growth remained modest in Q4.
The EMI survey data show how domestic demand has helped prop up emerging market growth rates in 2010 while many developed countries have seen domestic demand hit by high unemployment, public sector spending cuts and deleveraging by indebted households. However, there are signs that domestic demand in the developed world may soon start to pick up as a result of improving job market data.
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