Lower Chinese output puts brakes on emerging market expansion in June: HSBC

Saturday, 6 July 2013 00:00 -     - {{hitsCtrl.values.hits}}

Reuters: Business activity across emerging economies was the slowest in four years in June with manufacturing and new orders shrinking, a purchasing managers’ survey showed on Friday. Sentiment in China’s services sector was the weakest since 2005 while manufacturing contracted in China, India, South Korea, Taiwan and Vietnam, dragged down by falling output and new orders. The report pointed to a slide in the Japanese yen as a factor in falling competitiveness in South Korea. The composite HSBC Emerging Markets index for services and manufacturing fell to 50.6, the lowest since 2009, and only just above the 50 mark that signals growth. It fell from 51.4 in May. “It is the softest reading we have had in more than four years, though it is not quite as bad as the depths we saw during the financial crisis,” said Stephen King, global chief economist at HSBC. “Having had a few good years, emerging markets are now facing threats that were not there previously (including) the fear of tapering of quantitative easing from the Federal Reserve.” The HSBC survey, which collects data from purchasing managers at about 7,500 firms in 16 emerging markets. The survey showed the emerging market index’s weakest composite result since the global financial crisis in 2008/09 when, for a fleeting moment, the index dropped to 42.0. For the first half of this year, the manufacturing sub-component was particularly soft at 49.5, implying an overall manufacturing contraction across emerging markets for the first time since October 2012. In China, manufacturing shrank after growing slightly in May. HSBC cut China’s 2013 growth forecast to 7.4% from more than 8 percent at the beginning of the year as a result of anticipated ‘supply side’ reforms. New orders fell for the first time since March 2009 in India, though export business rose at the sharpest rate this year as demand from foreign clients strengthened. “For India the ... five-year plan which came to an end last year was quite ambitious in regard to power generation alongside various transportation projects, but about a third of what was planned came to fruition,” King said. India, Brazil, Indonesia and Chile are now running large current account deficits. Long term, HSBC said ‘growing pains’ would subside as China rebalances its economy away from exports and infrastructure to domestic consumption. That should help establish China as a lender to other emerging nations and build on trade links between China and other parts of Asia, sub-saharan Africa and Latin America. The index is calculated using data produced by Markit.