Global Economy
Emerging markets growth lowest since 2009; Global growth at 30-year average
By Michael Hennigan, Finfacts founder and editor
Apr 10, 2015 - 5:08 AM

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Emerging markets (EM) growth is at the lowest since the 2009 global slump as economies struggle with weak commodity prices and a strong dollar. Meanwhile, global growth is at an average of the last 30 years.

On Tuesday, the HSBC Emerging Markets Index, a monthly indicator derived from the PMI (purchasing managers' index) surveys from 17 nations, fell to 51.6, from 51.9 in February. The latest figure signalled the weakest rate of expansion since January, and the average over the first quarter (51.6) was broadly in line with that shown for the final three months of 2014 (51.5). The slowdown reflected a weaker rise in manufacturing output, where the rate of growth was at a ten-month low. Services activity increased at the fastest rate in 2015 so far, but only at a modest overall pace.

Christine Lagarde, managing director of the International Monetary Fund (IMF), said Thursday that the world is facing low growth twinned with high debt and unemployment unless policy makers take action.

“Six months ago, I warned about the risk of a ‘new mediocre’— low growth for a long time, Lagarde pointed out. “Today, we must prevent that new mediocre from becoming the ‘new reality’.”

Lagarde, speaking ahead of the IMF-World Bank Spring Meetings that take place April 17-19 in Washington, observed that since the Annual Meetings last October, the global economy has benefited from lower oil prices and by the strong performance of the world’s largest economy, the United States. “So the global recovery continues, but it is moderate and uneven.”

“The challenge for policymakers around the world is to combine the policies needed to boost today’s growth with those fortifying tomorrow’s prospects,” she noted.

The managing director stressed that, while global growth is not bad — at 3.4% last year it is roughly the average for the last three decades — it is “just not good enough.” She urged policymakers to press ahead with needed reforms.

Quoting John F. Kennedy on the risks of inaction, Lagarde warned that “comfortable inaction is what must be avoided.”

Last Friday it was reported that the US created the fewest new jobs in March in 15 months, a steep downshift in hiring that raises questions about the strength of the recovery — it may well turn out to be weather related.

The economy generated just 126,000 new jobs last month, breaking a streak of 12 straight 200,000-plus gains and marking the smallest rise since the end of 2013. The unemployment rate was unchanged at 5.5%, the Labor Department reported .

"The financial crisis was an external shock that EMs were able to recover from pretty quickly,"  said Neil Shearing, chief emerging markets economist at Capital Economics, according to The Financial Times. “This slowdown is longer in the making, and is driven largely by internal factors,” said Shearing, predicting that the slowing momentum represented a “new normal” likely to persist for a decade or so.

Capital Economics, which tracks 46 emerging markets, expects average EM economic growth in the first quarter the year to have declined to 4% year on year, down from 4.5% in the fourth quarter of last year — the lowest level since 3.9% in the final quarter of 2009.

The Institute of International Finance's Coincident Indicator declined markedly in March to 1.8%, continuing the weakening trend of the past months. According to the March estimate, EM GDP may have grown in 2015Q1 at its weakest pace since early 2009. EM activity had already decelerated last year from 4.4% q/q, saar in Q3 to 3.6% q/q, saar pace in Q4

The lobby group for global banks says that among the 41 macroeconomic and financial variables that feed into the EMCI, the common trend among hard data extended its steep downward trend and sentiment indicators weakened. In contrast, financial market variables showed early signs of stabilization

The FT reports that Jasper McMahon of Now-Casting Economics estimates that Brazil’s economic growth rate may have slumped to a negative 1.24% in the first quarter, down from a negative 0.3% in the fourth quarter of last year. China’s annual expansion rate may decline to 6.82%, from 7.3% in the fourth quarter. Mexico, a relative EM bright spot, could see a fall from 2.6% in the fourth quarter to 2% in the first.

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