Global Economy
Emerging Markets Index falls to 12-month low in May as manufacturing contracts
By Michael Hennigan, Finfacts founder and editor
Jun 8, 2015 - 1:43 AM

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The rate of output growth in emerging markets slowed for the third month running in May, according to the latest survey data from HSBC and Markit. Manufacturing contracted.

The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI (purchasing managers' index) surveys, fell to 50.7, from 51.3, the lowest reading since May 2014 and signalling only marginal growth. Both the services and manufacturing sectors contributed to the overall slowdown in expansion in May.

Services output rose at the slowest rate since January, while manufacturing production fell for the first time since April 2014, albeit only marginally. Among the four largest emerging economies, Brazil registered the fastest rate of decline since March 2009. China and India registered the slowest rates of growth in four and seven months respectively. In contrast, Russia saw private sector activity rise for the second month running, and at the fastest – albeit modest – pace since December 2013. Another weak increase in new business in May suggested that output would remain lacklustre in June.

Moreover, the volume of outstanding business fell for the fourth consecutive month in the latest period. Emerging markets registered a further fall in employment in May, the third in successive months. This marked the longest sequence of job shedding since that which lasted from October 2008 to July 2009. Inflationary pressures picked up slightly in May.

Input prices rose at the strongest rate in ten months, while output prices grew at the fastest rate since February. That said, the rates of inflation in both cases remained relatively weak. The outlook for global emerging markets remained subdued in May. The HSBC Emerging Markets Future Output Index, which tracks firms’ expectations for activity in 12 months’ time, rose for the first time since February, but remained well below its trend level since the series started in April 2012. Sentiment was notably weak in Brazil.

Chris Williamson chief Economist, Markit, said: “Growth of emerging markets ground almost to a halt in May, according to the latest PMI surveys, highlighting the deepening malaise facing many parts of the global economy.

“Economic growth in the emerging world has sunk to the weakest for a year, led down by a near-stalling of global trade flows which has hit manufacturing, as well as lacklustre demand in local economies and an accompanying lack of job creation.

“Brazil in particular is heading for a deep recession, with high inflation and rising interest rates killing demand to the extent that the economy is contracting at its fastest rate for six years. Growth has meanwhile slowed to a crawl in both China and India compared to pre-crisis rates of expansion, acting as major brakes on the global economy. In China, it is the mighty manufacturing economy which is leading the downturn, registering its first drop in production since late last year. In India, the dominant service sector is in decline for the first time for over a year.

"Manufacturing across Asia ex-Japan contracted for a second successive month as a result, and service sector growth faltered in the region. The sole bright spot appears to be Eastern Europe, which appears to be benefitting from revived growth in the Eurozone. However, weakness in Russia, linked to low oil prices and sanctions imposed by the West, remains a drag on wider European growth. Although Russia saw growth pick up to the highest since the end of 2013, its industrial sector remains in decline with manufacturing output contracting in May."


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