Emerging market economic growth was sustained at a solid rate at the start of the second quarter of 2024, according to PMI survey data with well-balanced improvements recorded across both the manufacturing and service sectors. Forward-looking indicators continued to point to further near-term expansions, with new business inflows notably rising at the fastest pace in close to a year.
That said, cost pressures intensified for emerging market firms as average input prices rose at a faster rate. Rising costs, often linked to higher import prices, also affected sentiment among emerging market firms, with optimism levels easing to a six-month low in the latest survey.
Emerging markets sustain broad-based solid expansion in April
The PMI surveys compiled globally by S&P Global found the emerging markets to have collectively expanded in April at a rate that was solid and little changed from April’s ten-month high. The GDP-weighted Emerging Market PMI Output Index fell to 53.6 from 53.7 in March. This also marked the twenty-third successive month in which emerging markets have outperformed developed markets, albeit to the smallest degree since last October following an acceleration of developed markets growth to a ten-month high in April.
Detailed emerging market sector data indicated that the rates of expansion across both manufacturing and service sectors were again similar, though fractionally slower in both cases than in March. This comes after manufacturing sector output expansion almost caught up with services activity growth at the end of the first quarter, with April’s rate of manufacturing output growth being among the fastest in the past year.
Of the four major emerging market economies, India remained the brightest spot with the rate of expansion far surpassing the other three BRICs economies even as it slowed from March. Brazil and Russia’s growth rates likewise eased in April, but Mainland China’s expansion accelerated to an 11-month high on the back of faster manufacturing production growth. The rise in Mainland China’s manufacturing output was fuelled by the fastest inflow of new export orders in nearly three-and-a-half years as panellists cited improvements in global demand for Chinese manufactured goods.
Forward-looking indicators point to near-term emerging market growth
While the rate of business activity growth slightly slowed in the emerging markets as a whole in April, incoming new orders rose at a faster pace, hinting at a sustained near-term expansion of output. The rate of new business growth was notably the fastest since last May.
It was also encouraging to see that both the manufacturing and service sectors contributed to the acceleration in overall new business growth with the rates of growth surging to the fastest in 40 and 11 months respectively. Moreover, the level of backlogged work rose marginally for the first time since January among emerging market firms. All of these are indicative of a sustained pipeline for business activity growth in the coming months.
Rising cost pressures threaten margins
While output and new business continued to increase solidly in the emerging market, it is worth highlighting that the Future Output Index fell to a six-month high amid concerns over rising costs, increased competition and future sales prospects.
Concerns of rising costs reflected an acceleration of emerging markets input price inflation to a level that matched the rolling 12-month average in April. Globally, shipping and wage costs remained the biggest contributors to rising input prices, but anecdotal evidence also pointed to a stronger US dollar inflicting cost pressures upon the likes of emerging market economies.
Meanwhile, despite heightening cost pressures, emerging market output prices continued to rise at a rate that was only mild and unchanged from March, reflecting the reluctance among businesses to raise prices charged to preserve sales. Amid potential delays in US FOMC interest rate cuts, which may well keep the greenback’s recent strength elevated, it will be important to watch the inflation trajectories for the emerging markets and the impact of higher import prices on margins.
Original Post
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Read the full article here
