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Sunday, 26 May 2019

EM PMIs best developed economies for first time since 2013

Emerging markets have pulled ahead of advanced economies for the first time since 2013 on the latest purchasing managers’ indices (PMI) for services and manufacturing, the Financial Times reports. After a bumpy year, emerging markets’ aggregate reading for the two indices comes in at 52.4 for EMs, suggesting that annual GDP growth will be in the range of 5.5% — well above the 4.4% recently forecast by the IMF. Meanwhile, developed markets’ readings fell below those of EMs on both indices. A reading above 50.0 tends to show that business activity is expanding, while a figure below this indicates contraction.

What’s behind the better-than-expected performance? Industrial production grew to 3.6% y-o-y in March from 2.1% in December, driven by steady global demand for EM products. Exports appear to be making a “pretty significant recovery,” with the export orders component of the EM manufacturing index having risen to 49.5 from 48.5 between February and April. Others have suggested that the improvement is the result of monetary easing in some EM, including Egypt, as rate hikes resulting from last year’s EM Zombie Apocalypse were reversed. Egypt’s PMI broke the all-important 50.0 mark in April, showing that non-oil business activity expanded for the first time in eight months.

The calm before the storm? The PMI data was compiled before the recent intensification of tensions between China and the US, which has sent jitters through emerging markets over the past several weeks and threatens to undo the recent rebound in EM PMIs. Renaissance Capital chief economist Charles Robertson is one of several analysts “expecting EM PMIs to take a beating in coming months due to the trade war.”

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