By Daniel Hunter
The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI surveys, signalled the fastest rise in output in seven months in October. At 51.7, the EMI remained well below its long-run trend level of 54.0. But the latest figure represented an improvement on the trend shown over Q3 (50.3), the lowest of any quarter since Q1 2009 during the global financial crisis.
Both manufacturing production and services activity registered stronger rates of expansion in October, reaching six- and seven-month highs respectively.
China registered a stronger increase in output in October. Notably, new export orders at manufacturers rose at the fastest rate in nearly a year.
Of the other largest emerging economies, Russia and Brazil posted sharper increases in activity, but India registered a fourth successive decline in output. Meanwhile, new PMI data for South Africa signalled a recovery in private sector growth, following a contraction in September.
New business growth across global emerging markets also rose at the strongest rate in seven months in October. This led to the first overall rise in employment in four months, and a stable trend in backlogs of work.
The rate of input price inflation eased in October, but was the second-fastest in eight months. Output prices rose for the third month running, but at a slower rate than in September.
Simon Williams, HSBC Chief Economist, said: “After a soft summer, there are some grounds for cheer in the October EMI which shows growth in emerging market activity at its highest level since March 2013. The aggregate measures of emerging market output, new business and employment all printed above 50 and showed significant m-o-m gains for the third month in succession, suggesting that the bounce-back in activity and confidence is gaining speed. The survey also suggests that the pick up is broad based, with fifteen of the eighteen emerging markets covered by the PMI series showing an increase in m-o-m output.
"The continued gains in China data are particularly encouraging, substantiating our view that fresh stimulus has helped growth find a floor. There are also strong October numbers in Brazil and Russia, with the latter recording its highest output growth number in a year. Though softening m-o-m, the strongest growth numbers continue to be recorded in high spending oil-rich economies of the Gulf.
"With tapering fears in abeyance for now and Europe out of recession, capital flows and external demand should support emerging market sentiment and performance through the year end.
"Fragilities, however, remain. At under 52 points, the aggregate EMI headline score is up on its 2013 lows, but remains well below the 2010-12 average. Employment in both the manufacturing and service sectors remain subdued despite the gains in output, and price pressures persist. The pick-up in export orders, though of note, is patchy and looks lukewarm for this stage in the economic cycle.
"Our worries over emerging markets reliant on external funding for large fiscal and current account deficits persist despite reduced tapering fears. Indeed, of the “fragile-five” emerging market economies, Brazil and Indonesia recorded a modest pick- up in manufacturing activity from a low base, while Turkey and South Africa, decelerated and India contracted for a sixth consecutive month.”
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