Ongoing uncertainty in the eurozone, combined with low levels of US activity and a slowdown in non-eurozone countries have all had a flattening effect on the Q2 Emerging Markets Index (EMI) figures. While the rate of expansion was solid, it was weaker than the average for the past three years, and of the 'big four' emerging markets, Brazil and China are expanding more slowly than Russia and India.
Murat Ulgen, HSBC's chief economist for Central and Eastern Europe and sub-Saharan Africa, said, "The protracted nature of the eurozone crisis will continue to pose strong headwinds for the emerging market economies, with financial deleveraging and export trade channels providing powerful undercurrents dragging down economic performance. That said, emerging market growth remains resilient in the face of excessive external uncertainties, and with plenty of ammunition at their disposal to deploy, they are set on the right track."
Global demand for goods produced by emerging market manufacturers decreased for a second quarter, with producers in Brazil and China noting declines in new export business over Q2. Foreign order levels also fell in the Czech Republic, Poland (the sharpest decline in three years) and Taiwan. In contrast, India, Russia, Turkey and South Korea saw export orders rise.
Service sector growth slowed in Q2, with overall expansion among the weakest recorded in the past three years, and both India and Russia seeing their slowest growth since Q1 2011, although China bucked the trend with the strongest expansion in 18 months.
There is a marked contrast between manufacturing and service prices, with manufacturers passing falling commodities costs on to customers, while service providers continue to raise their selling prices in reflection of a strong rise in input costs.
The slowdown has also hit jobs with emerging market companies hesitant about hiring in both the manufacturing and services sectors. Manufacturing employment levels are declining, services jobs are only growing slowly, and Q2 saw China's first fall in overall employment for more than three years.
Despite the slowdown, emerging market service providers are confident about the future, reporting the highest levels of optimism in two years, with Brazil and India the most optimistic of the big four.
The EMI is based on 21 Purchasing Managers' Index (PMI) surveys conducted across 16 emerging markets and provides the earliest and most reliable indication of economic trends.