Developed World Still Driving Global Growth While Emerging Markets Gain Momentum

Emerging markets showed new signs of life in June after stagnating in prior months, enjoying the strongest upturn in business activity since the end of the first quarter of last year.

The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI surveys, indicated stronger output growth across global emerging markets in June.

The EMI posted 52.3, up from 50.6 in May, signalling the sharpest rate of expansion since March 2013. That said, it remained below its long-run average of 53.8.

“The June data nevertheless point to only modest growth, and inflows of new business are still disappointingly weak," notes Chris Williamson, Chief Economist, Markit.

The pick-up in output growth was reflected in both manufacturing and services, most notably the latter where activity growth hit a 15-month high.

Three of the four largest emerging markets contributed to the faster overall rise in output in June. China posted the sharpest increase in output for 15 months, while India saw the steepest expansion since February 2013.

Inflationary pressures remained subdued in June, despite input price inflation reaching a four-month high.

Prices charged for finished goods and services continued to rise only fractionally.

Business expectations

The HSBC Emerging Markets Future Output Index tracks firms expectations for activity in 12 months time.

The index rose for the first time since February in June, indicating strengthening sentiment across emerging markets.

The improved overall outlook reflected the service sector, while manufacturers were the least optimistic since September 2012.

Three of the four largest emerging economies registered stronger output expectations in June.

India registered the brightest outlook for the third successive month, ahead of Brazil and China respectively.

"At present, the developed world is driving global economic growth, but the emerging markets are now at least showing signs of exerting less of a drag. If momentum can build in coming months, improvements in the emerging markets will help lift global growth higher in the second half of 2014,” says Williamson.

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