Emerging market growth eases, inflation on rise - HSBC

Friday, 8 April 2011 00:01 - - {{hitsCtrl.values.hits}}

(Reuters) - The pace of growth in emerging markets eased in the first three months of 2011 led by a Chinese slowdown, but companies’ input cost inflation rose to a near three-year high, HSBC’s quarterly index showed on Thursday.

HSBC’s emerging markets index (EMI), based on 21 purchasing managers’ surveys in 16 emerging countries, slipped to 55 in January-March from 55.7 in the preceding three months.

It was the eighth successive quarter of emerging output growth and remains above the series average of 54.9. A reading above 50 denotes expansion.

But HSBC Chief Economist Stephen Green said growth is losing momentum while inflation is in danger of becoming entrenched.

“Rising inflation and fading growth are hardly an encouraging combination and the hope must be that the loss of momentum will eventually temper inflation,” Green told clients.

HSBC expects economic growth in emerging markets to slow to 6.3 percent this year from 7.5 percent in 2010, he added.

The slowdown is being led by the services sector which saw growth dipping to a seven-quarter low, while Chinese service activity growth was the weakest since end-2005 when the series began.

Russian services expansion slowed, Brazil posted moderate growth while Indian service growth was the highest in three quarters.

On the manufacturing front too, Chinese growth eased markedly, to the slowest in eight quarters, the data showed.

The index appears to show that China’s efforts to slow its blistering economic growth are bearing fruit. The country has raised interest rates four times since October and has hiked banks’ reserve ratios nine times since early-2010.

Manufacturing overall expanded more slowly with the exception of eastern Europe, where production growth hit series record highs in the Czech Republic and Turkey.

Indian output growth too held steady at a near-record rate.

India also remains the key contributor to growth in new business, recording the sharpest expansion in three quarters. Chinese new orders, in contrast, cooled to an eight-quarter low.

Overall in emerging markets, new orders growth rose only fractionally and was at the second slowest since mid-2009.

Inflation on the other hand quickened across the board, with input cost price rises in manufacturing at their highest since the second quarter of 2008. Cost inflation in services touched a 2-1/2-year high.

Of the four biggest emerging markets, only China saw cost inflation cool while India posted a series record rise. Brazil and Russia saw nine- and 11-quarterly highs in cost price rises.

Firms were also passing on the rapidly rising input costs to their customers via higher prices which pushed the pace of output price inflation to the fastest in almost three years.

The inflation and slowing growth cast a pall on business optimism, which recorded the fourth-lowest level in the series’ 5-1/2-year history.

Indian service providers’ confidence however was at a three-year high but Brazil and China saw confidence remain well below their long-term average.

Data for the EMI is compiled by Markit.