Emerging Market Growth Weakens in October

The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI surveys, fell to 51.5 in October, from 52.5 the previous month, signalling weaker output growth across global emerging markets.

The current sequence of overall expansion now stretches to 15 months, but the latest increase was the weakest since May. The EMI has trended at 53.8 since its inception in November 2005.

The weaker growth momentum at the start of the final quarter was the result of slower service sector expansion, as growth of activity eased from September’s 19-month high. The rate of growth in manufacturing output was unchanged from September’s modest pace.

The four largest emerging economies all fared worse in terms of output in October. China registered the weakest rate of expansion since July, while Indian growth slowed to a five-month low.

Brazilian private sector output declined for the sixth time in seven months, and at the fastest rate since May 2009. Finally, Russian output fell for the first time in five months.

New business inflows across emerging markets globally remained subdued in October, rising at the weakest rate in five months. The volume of outstanding business declined for the fourth month running. Employment growth remained marginal.

Inflationary pressures moderated in October. Input prices rose at the slowest pace since June 2013, while output prices fell slightly for the first time in seven months.

Business expectations

The outlook for global emerging markets improved slightly but remained relatively weak in October. The HSBC Emerging Markets Future Output Index tracks firms’ expectations for activity in 12 months’ time, and improved slightly to a three-month high on the back of stronger service sector sentiment.

Among the largest emerging markets, output expectations picked up in India and Brazil but deteriorated in China and Russia.

“The surveys are indicating that emerging market economic growth is likely to struggle to exceed 5% in the fourth quarter, in stark contrast to the double-digit rates of expansion commonly seen prior to the financial crisis," said Chris Williamson, Chief Economist, Markit.

Chinese manufacturers again signalled only a fractional improvement in overall operating conditions in October. Output and new business both expanded at the slowest rates in five months, while new export order growth weakened to a modest pace.

October data signalled a further loss of growth momentum in Taiwan’s manufacturing sector. Production rose at the slowest rate in 13 months, while total new orders and new export orders also expanded at weaker rates.

South Korean manufacturers signalled a decline in output for the seventh month in a row in October, though the rate of decrease eased. Total new orders also fell alongside a solid decline in new business from international markets.

Operating conditions in the Indonesian manufacturing sector worsened in October, reversing the modest improvement reported during September. Contractions in output and new orders mirrored the overall deterioration in business conditions.

Business conditions in the Vietnamese manufacturing sector improved slightly in October as output and new orders increased and firms took on extra staff at the strongest pace since January. Meanwhile, suppliers’ delivery times shortened for the first time in ten months.

Continuing the trend observed throughout the past year, business conditions in the Indian manufacturing sector improved in October. Underpinning the latest improvement was accelerated growth of output and new orders.

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