HSBC's latest quarterly Emerging Markets Index (EMI) finds the woes of the developed world hitting growth in other nations as manufacturing and service industries slow.
The EMI slipped to 52.1 from 53.2 in the second quarter, with the rate of emerging market growth at its weakest for a year.
Dr Murat Ulgen, HSBC's Chief Economist for Central and Eastern Europe and Sub-Saharan Africa, said: "Emerging economies are being impacted by the misery of the developed world as the deteriorating global trade cycle, weaker external demand and falling new export orders hit manufacturing output and the services outlook. The loss of momentum also partly stems from domestic policy choices for restraint after a very resounding recovery in late 2009 and 2010. The end result is disappointment as the emerging world, in particular China, continues to surprise to the downside."
Although manufacturing was the main cause of weakness in this quarter, the outlook for the services economy has deteriorated to its lowest level since the survey began seven years ago, with Brazilian private sector firms reporting stagnation in both manufacturing and services.
New export orders for emerging markets manufacturers fell for the third successive quarter, which, combined with the slowest increase in service sector new business for four quarters, made the overall pace of new business the weakest since Q2 2009.
Among the four largest emerging economies, Brazil and China underperformed India and Russia in the third quarter. Chinese output rose only marginally, a consistent trend since the second half of 2011, while goods production fell for the fifth successive quarter.
Growth rates stabilised at sub-par levels in both India and Russia although Russian manufacturing demonstrated some resilience, registering the strongest performance in six quarters in terms of output growth. In contrast, Indian manufacturing posted its worst quarter in 2012, although growth in the service sector accelerated slightly.
The figures revealed the weakest input cost inflation in more than three years as the average cost of inputs to manufacturers fell for the first time since Q2 2009, driven largely by China, which suffered a fourth successive quarterly decline in prices. In the service sector, input cost inflation was the slowest in 11 quarters, with China the weakest among the four largest emerging economies.
With moderation in economic growth across the emerging world during the third quarter, emerging market companies continue to be reticent in employment growth. The average rate across both sectors reached the weakest level since workforces resumed their rise in Q3 2009. Overall, workforce growth was centred on the service sector, where the rate of growth was in line with the modest trend of the past five quarters. Conversely, manufacturers continued to trim their workforce, marking a fourth consecutive quarter of marginal job shedding.
Read the full report.