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  • SABB/HSBC Emerging Markets Index Q1 2012

    June 2012


    SABB/HSBC Emerging Markets Index rises to 53.4 in Q1 2012 on both manufacturing and services growth. Further expansion in service activity to three-quarter peak; optimism rebounds across the board. Manufacturers see marginal growth for the first time in three quarters; China lags other BRICs. Another quarter of input price inflation extends run of rising costs to three years. Policymaker attention turns to promoting growth after period of quantitative tightening .

    Emerging market output rose at its fastest rate in three quarters in Q1 2012 as a resumption of manufacturing growth supplemented continued expansion in service activity, the SABB/HSBC Emerging Markets Index (EMI) shows.

    Delivering some of the bounceback-ability highlighted in the previous report, the EMI rose to 53.4, from 52.4 in Q4 2011, reflecting a sustained expansion of activity at service providers, with growth reaching a three-quarter peak. Manufacturers meanwhile saw output increase for the first time in three quarters, albeit at a marginal rate.

    Consistent with the trend throughout 2011, service activity outperformed manufacturing. Underperformance in China was the main drag on manufacturing. Manufacturers in the world’s second-largest economy reported reduced production for the third quarter in a row, with the pace of decline the sharpest in that sequence and the index reading measuring trends in factory output among the lowest on record.

    China was the only one of the big-four emerging markets to register lower manufacturing production in Q1. India saw output growth surge to a three-quarter high, while Brazil recorded a rise in production for the first time since Q2 2011. On a less positive note, Russia saw production growth ease to within touch of the nine-quarter low registered in Q3 2011. Meanwhile, demand for goods produced by emerging market manufacturers on global markets remained muted in Q1, with new export business falling marginally. Only India recorded growth of new export orders among the largest emerging markets.

    Stephen King, HSBC’s Chief Economist, said: “The latest HSBC EMI underlines the relative immunity of emerging nations to the economic permafrost of the developed world. Emerging nations still have many years of economic “catch-up” ahead of them, suggesting that their growth rates – driven by continuous urbanisation alongside productivity gains linked to improved access to global capital – should remain significantly higher than in the west. They also have considerably more policy ammunition to deploy, including rate and reserve ratio cuts and, if necessary, fiscal stimulus.

    “Despite two successive quarters of strength, EMI remains at a relatively low level, thanks largely to further deterioration in Chinese export orders but also domestic demand as a result of attempts to tame inflationary pressures through quantitative tightening. Emerging market inflation has generally eased outside India, despite

    the return of higher oil prices, and policymakers are returning their focus to promoting growth over limiting inflation.

    “Emerging nations still have to balance the risks of too little growth against the threat – if not yet the reality – of commodities-driven inflation. But the outlook remains encouraging with China, India, Brazil and Mexico all set to be top ten global economies by 2050.”

    Robust rates of growth in service activity were recorded in Brazil (fastest in almost four years), India (three-quarter high), and Russia. Meanwhile service sector business optimism for the next 12 months was the highest in one-and-a-half years, with confidence improving across the board, albeit still at weaker levels than series averages. Service providers in Brazil were the most optimistic since Q4 2007 about the one-year business outlook.

    Another quarter of input price inflation in Q1 extended the current period of rising costs to three years, although this was more pronounced in services than manufacturing and in India over China. While firms passed on some of these charges to customers, the rate was only modest compared with rising costs. Manufacturers noted a second successive quarter of output price discounting while service providers reported a slight uptick in inflation. China was the only one of the big-four to record a reduction in overall selling prices in Q1.

    The HSBC EMI is calculated using the long-established PMI data produced by global financial information services company Markit. HSBC announced a partnership in 2009 with Markit to sponsor and produce a number of emerging market PMIs.


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