The emerging markets drove the world economy forward in 2012, but at a slower pace than in recent years.
The HSBC Emerging Markets Index (EMI) rose from 52.2 in 3Q to 52.9 in 4Q, helped by a recovery in manufacturing.
That is below the levels of the past four years, but signals that emerging countries remain strong and still more than offset economic weakness in the developed world. Employment increased at the strongest rate for six quarters, and inflationary pressures remain muted.
"Although hardly buoyant economic growth, recent improvements are encouraging, especially as complemented by encouraging signs for the early months of 2013," says Stephen King, HSBC Group Chief Economist.
A return to manufacturing growth in China and Brazil and strong expansion in India, Mexico and Turkey were features of the fourth quarter. Overall manufacturing output, which had declined marginally in 3Q 2012, rose modestly in 4Q.
When manufacturing and services are combined, the BRIC economies all expanded in 4Q, with a pick-up in Brazil, solid progress in India, the best growth for two years in Russia, and relatively weak growth in China.
Encouragingly, new manufacturing orders rose at the fastest rate since 2Q 2011, led by Mexico, India and Russia. But new export business fell marginally for the fourth quarter in succession, after weak demand from advanced economies, notably the eurozone.
The report says the outlook for Chinese growth is improving; HSBC projects GDP growth of 8.6 percent in 2013, up from 7.8 percent in 2012. For the emerging world as a whole, HSBC expects growth of 5.4 percent in 2013, up from 4.8 percent in 2012.
King points out that while China has yet to resume the pace of growth it once enjoyed, it is now a much bigger economy and as a result, its contribution to world growth continues to rise.
It's no surprise that economies which have increased their exports to China – typically at the expense of exposure to the old world – have mostly enjoyed rapid gains in economic activity over the last decade," adds King.
However, those economies less exposed to China have "mostly found themselves suffering from persistently disappointing GDP growth."
The EMI is based on 23 Purchasing Managers' Index (PMI) surveys across 18 markets, and gives the earliest and most reliable indication of economic trends.
Any reading above 50 signals expansion. The 4Q figure of 52.9 is positive but below the average over the four years since the 2008 financial crisis.
Brazil has not had the investment boom some expected ahead of the 2014 FIFA World Cup, while India has suffered power generation problems and transport shortfalls.
The PMI surveys also cover the services sector, where output rose fractionally in 4Q from a four-quarter low in 3Q. Optimism among service firms is highest in Brazil and India, and relatively subdued in Russia and China.
The services sector is leading job creation, which accelerated in 4Q. But manufacturers have trimmed their workforces for five successive quarters.
Inflation picked up in 4Q, but remains weaker than the six-year average. The services sector's input cost inflation in 4Q was the second weakest of any quarter in the past three years.
But in manufacturing, the average cost of components rose at the fastest rate since 3Q 2011.
The HSBC EMI is calculated using the PMI data produced by financial information services company Markit.