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EMI drops to 49.4

The index suggests that manufacturing in Asia remains weak

The HSBC Emerging Markets Index (EMI) has fallen to its lowest level since the global financial crisis. The figure dropped to 49.4* in July, down from 50.6 in June.

The main risk for emerging markets at the moment is that the cyclical downturn in manufacturing and softer service-sector activity will ultimately lead to a weaker job market

Frederic Neumann,
Co-Head of Asian Economic Research, HSBC

It is the first time that the index, which measures the health of the manufacturing sector across 16 countries, has fallen below 50 since April 2009. A reading above 50 shows expansion, while below 50 contraction.

The index suggests that manufacturing in Asia remains weak with goods production also falling in Russia, Brazil and Mexico. China, India and Brazil all reported lower levels of new work, while new business in Russia was the slowest in nearly three years.

Chinese manufacturing output fell for the second consecutive month after the sharpest decline in new business for almost a year. Exporters in China reported that new sales to Europe, South-East Asia and the US were all lower than recorded in June.

Employment in the emerging markets was broadly unchanged from June, with job losses in manufacturing offset by marginal employment growth in the service sector. Inflationary pressures remained weak in July with the prices of consumer goods and services broadly flat.

Regional view

  • “MENA’s oil-rich states are still growing well, but Egypt’s road to recovery is a long one.”
    Simon Williams,
    HSBC Chief Economist, Middle East and North Africa
  • “Asia manufacturing orders fall sharply, despite a more stable West. Worries now local, especially with China’s engine spluttering.”
    Frederic Neumann,
    Co-Head of Asian Economic Research
  • “Bad month; Mexico manufacturing’s first fall since 2009, on US weakness, while Brazil sees even faster drop on poor domestic sales.”
    Andre Loes,
    HSBC Chief Economist, Latin America
  • “CEE looks better than Russia and Turkey, perhaps due to eurozone stabilisation. They are also less vulnerable to a liquidity shock.”
    Murat Ulgen,
    HSBC Chief Economist, Central and Eastern Europe and sub-Saharan Africa

Frederic Neumann, Co-Head of Asian Economic Research, HSBC, said: “The main risk for emerging markets at the moment is that the cyclical downturn in manufacturing and softer service-sector activity will ultimately lead to a weaker job market.”

The HSBC Emerging Markets Future Output Index, which measures expectations a year ahead, rose slightly in July from a 16-month low in June. Manufacturing sentiment weakened for the fifth consecutive month, while business expectations in services picked up slightly since June. Among the four largest emerging economies surveyed, sentiment was weakest in China.

Neumann said that some comfort could be taken from the relative stability of the Future Output Index. “While it [the index] eased back marginally for manufacturers, it rose for service providers. This suggests that relative optimism remains among businesses regarding the emerging market growth trajectory over the coming 12 months.”

The HSBC EMI is based on national Purchasing Managers’ Index™ surveys of about 7,500 firms. The figure is subject to one revision after its release.

HSBC Emerging Markets Index (EMI) from 2006 to 2013

*This figure was later revised to 49.5.

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