JEDDAH – Emerging market growth abated slightly in Q2 as a solid performance from the services sector was offset by only modest growth in manufacturing, the SABB/HSBC Emerging Markets Index (EMI) revealed Wednesday. The EMI slipped to 53.0, from 53.6 in Q1. The service sector is still expanding at a moderate rate, although has slowed from the pace seen this time last year. The level of activity in the manufacturing sector is broadly stable as demand from Western economies remains lackluster. Among the big-four emerging markets, a two-speed growth picture was evident as expansions were slower in Brazil and China compared with India and Russia. Brazilian activity growth weakened again having looked more promising earlier in the year and China recorded only modest growth. In both cases, manufacturing underperformance was the principal drag on activity. Global demand for goods produced by emerging market manufacturers continued to weaken in Q2, with new export business decreasing for a second successive quarter. Brazil and China saw new export orders decline in contrast to rises seen for India, Russia, Turkey and South Korea. Service sector activity grew at a sub-par rate in the second quarter, with the overall expansion among the weakest recorded in the past three years. This reflected slower growth in Brazil (weakest in three quarters), India and Russia (slowest since Q1 2011). China meanwhile recorded a solid expansion that was the strongest in one-and-a-half years Murat Ulgen, HSBC's Chief Economist for Central and Eastern Europe and sub-Saharan Africa, said: “Despite a deceleration, emerging economies remain resilient to yet another false dawn in the developed world. The deepening of the eurozone crisis, disappointing US activity and a slowdown in non-eurozone countries has seen developed growth figures revised down yet again. However, this quarter there is a visible slowdown in the emerging giants comprising the majority of the BRICs, exacerbating a year-long pattern of below-trend growth rates for the emerging world." He added that “the manufacturing sector remains the greatest drag on activity, which still remains considerably below pre-crisis levels despite an improvement on the first quarter of 2012. Flat growth for new orders and a contraction in new export orders in manufacturing attest to the global economic challenges." Moreover, he said “despite being slightly lower in the second quarter, service sector growth has proved its resiliency by outpacing the manufacturing sector for more than a year now, albeit at markedly lower levels to pre-crisis averages. Current levels of business activity are responsible for a lack of confidence in employment conditions, with the first job-shedding in the Chinese economy since the global crisis a particular concern." Looking ahead, emerging market service providers remain confident about the one-year business outlook, with the degree of optimism the highest in two years. However, the extent of positive sentiment remains lower than in any quarter prior to the onset of the financial crisis. – SG
