Emerging markets growth, inflation pick up in Q4, says HSBC

Tuesday, 11 January 2011 00:01 - - {{hitsCtrl.values.hits}}

London (Reuters): The pace of growth in emerging markets quickened in the fourth quarter of 2010, thanks to a rebound in manufacturing, HSBC’s quarterly index showed on Monday, but input costs hit two-and-a-half year highs.

HSBC’s emerging markets index (EMI), based on 21 purchasing managers’ surveys (PMI) in 16 emerging countries, rose to 55.7 in October-December 2010 from a five-quarter low of 54.2 hit in the preceding three months.

This was the seventh successive quarter of emerging output growth, HSBC said. A reading above 50 denotes expansion.

The bank also said the data indicated emerging markets likely saw an annual growth rate of 8 percent in the final 2010 quarter – down from their first quarter peak of 9.6 per cent but outgunning implied developed world growth rates of under two per cent.

“The Q4 reading...confirms that the emerging nations continue to expand at a pace well ahead of the developed world,” HSBC Group Chief Economist Stephen King said in the report.

Manufacturing growth accelerated across emerging Europe, data showed, led by record expansion in Poland and Turkey, while in Asia, India and China registered sharp rises.

This was driven largely by a pick-up in export orders, with India recording the sharpest growth in exports.

Data for the EMI is compiled by Markit.

Business optimism low, inflation on the rise

While services remained stable in most countries, the outlook for the sector darkened as business optimism dipped to the second-lowest level in the series’ history.

Chinese and Brazilian service providers were the least optimistic about future activity levels while Indian business optimism was the lowest in six quarters. Russia bucked the trend, showing a rise in service sector activity as well as confidence.

Across emerging markets, employment levels continued to rise, increasing in Q4 for the sixth successive quarter.

However, the PMI data highlighted the rapid buildup of inflationary pressures across the developing world.

Input cost inflation quickened to the fastest pace since the second quarter of 2008, climbing almost six points from the previous three months to 61.9. HSBC attributed this to the commodity price boom as well as low stock holdings at suppliers, leading to delivery time delays.

“The sting in the tail comes from inflation. Not since the food and energy scares seen in the early months of 2008 have the cost and price components of the EMI risen to such worrying levels,” King said.

“Whether policymakers in the emerging world can tame inflation, is one of the big issues for investors to confront in 2010.”