Emerging markets growth remains solid amid intensifying inflationary pressures (2024)

ECONOMICS COMMENTARY Mar 13, 2024

Emerging markets continued to expand at a solid pace midway intothe first quarter of 2024, supported by broad-based expansionacross both manufacturing and service sectors. India remained thebrightest spot in the emerging market space, though major emergingeconomies such as Brazil, mainland China and Russia all recordedgrowth as well.

Forward-looking indicators hinted at sustained growth acrossemerging markets with rising new orders and high level of optimismobserved on aggregate. That said, signs of excess capacity can beseen with fresh reductions across backlogs and staffing levels inFebruary. Overall, price pressures have also intensified in thelatest survey period.

Broad-based expansion for emerging markets

The emerging market expansion sustained into the second month of2024, according to PMI data, extending the sequence of growth thatcommenced in January 2023. Despite slowing slightly from the startof the year, the rate of expansion remained amongst the fastest inthe past eight months and also surpassed that of developed markets,the latter seeing growth accelerate to the fastest since June 2023.This has altogether been supportive of global growth midway intothe first quarter.

Detailed sector data showed manufacturing output growthaccelerating to the fastest since May 2023 across emerging marketsand was solid overall. The expansion of services activity meanwhileslowed in February, but remained solid overall and continued tooutpace that of manufacturing for a fifth straight month.

Among the four major emerging market economies, India continuedto be ranked first as the fastest growing nation even as the rateof output expansion - owing to the slowdown in services activity -eased in February. Brazil followed with the rate of output growthaccelerating to a 19-month high on the back of improvingmanufacturing sector conditions. Mainland China and Russia likewisecontributed to the emerging market expansion in February, despiteregistering only moderate rates of growth.

Signs of spare capacity develop

Incoming new orders for emerging market goods and servicescontinued to rise in February at a rate that was solid, and littlechanged from January. This was supported by an acceleration of new export orders growth in February, whichreflected improving trade conditions for emerging markets. Theexpansion in overall new orders therefore hinted at sustainedoutput expansion in the near term, with emerging market firmsfurther maintaining a positive outlook on output in the 12 monthsahead.

That said, the level of confidence among emerging marketsremained below average when compared historically. Furthermore,signs of spare capacity have started to show with the level ofbacklogs falling in February while job shedding also occurred forthe third time in 13 months. The rates at which the level ofbacklogged work were depleted and employment levels fell werenevertheless marginal, but will be worth watching in the monthsahead.

Inflation pressures mount in February

To some extent, business confidence across emerging markets wasaffected by inflation concerns in February. Overall input pricesrose at the fastest rate since last October. Sector data furtherrevealed that both manufacturing and service sectors' input costinflation increased in the latest survey period amidst reports of rising worldwide shipping costs.

The intensification of input cost pressures therefore led toemerging market firms to raise their selling prices at the quickestpace in four months. Notably, the rate of inflation also returnedto a level above the series average to reflect elevated sellingprice inflation.

Overall, however, the rate of output price inflation acrossemerging markets remained subdued below the rolling 12-monthaverage globally in February, despite developed market sellingprice inflation similarly rising in the latest survey period. Thissuggested that the latest rise in inflation rates is unlikely toupend central bankers in their rate cut plans into 2024, but willnevertheless be worth watching for the extent to which centralbankers will lower rates in the year, especially givenmanufacturing demand only recently recovered globally.

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Jingyi Pan, Economics Associate Director, S&P GlobalMarket Intelligence

[email protected]

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Purchasing Managers' Index™ (PMI^®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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