Emerging markets are showing signs of stabilization
Are they weather vanes or flashing illusions? There are sporadic signs that the prolonged growth slowdown in emerging markets is stabilizing, and there are big differences as to whether this means that the situation in the developing world is finally beginning to look brighter.
Research firm Capital Economics recently used data from its proprietary "GDP growth tracker" to show that the growth rate of emerging markets reached 3% in August 2015, up from 2.8% in July.
Traditionally, the tracker is closely related to the official GDP data of emerging markets that have been released subsequently.
Capital Macros’ chief Asia economist, Mark Williams, said in a report: “Unlike what many people are talking about, the data in recent months have not shown any signs of growth collapse.” In fact, the growth seems to be fairly stable. If there is any change, it is that the situation now seems to have improved."
The growth tracker data shows that the pace of economic expansion in the three major emerging market regions of emerging Europe, emerging Asia and Latin America are showing signs of stabilization.
Williams said that this shift stems from some major changes in the macro environment of emerging markets. He argued that the Russian economic recession seems to be slowing down, while Latin America seems to be out of the trough, while China's growth is also stabilizing.
Emerging Europe stabilizes
The October 2015 "Economic Sentiment Index" released by the European Commission (European Commission) shows that among the 9 Central and Eastern European countries covered by the index, the economic sentiment of 7 countries has improved. Only the Czech Republic and Hungary, the two countries whose economic sentiment had remained optimistic before, had a slight decline in optimism compared with September.
Romanbia, Poland, Slovakia, Bulgaria, Latvia, Lithuania and Estonia all showed improvement in sentiment, and the overall level reached the highest point since September 2008.
These indicators have accurately described the economic crisis from 2008 to 2009 and the subsequent recovery. They were obtained after surveys of representatives of the manufacturing, service, retail and construction industries and consumers.
Capital Investment’s Emerging Europe GDP Tracker shows that the region’s economy contracted 1.4% in August 2015, which was an improvement from the 1.8% contraction in July and June. The company said that this improvement was largely due to the slowing down of Russia's recession.
However, others are not so optimistic about Russia.
Nomura analyst Dmitri Petrov expressed doubts about the sustainability of Russia’s September 2015 industrial output surge. He pointed out that the data benefited from many one-off factors, including the government. The purchased batch of railway locomotives was delivered.
Perhaps more indicative of Russia’s prospects is the decline in retail sales in September. This seems to be consistent with what Gazprom Bank pointed out in a research report: In October 2015, nominal salary growth fell to a record low of 4.5%.
Given the high inflation rate of 15.5%, the actual purchasing power of Russian households has fallen sharply. In addition, Gazprom pointed out that Russia’s official annual GDP growth forecast was revised downwards in October to -3.9%, which was worse than the September forecast of -3.3%.
The situation in China is divided, but at least the service industry is strong. China is another economy that has sparked differences of opinion. The industrial output value was weak in September 2015, with a year-on-year increase of only 5.7%, while the increase in August was 6.1%. The reason was that those industries with overcapacity continued to make painful adjustments. The output value of the cement, flat glass, crude steel and coking coal industries all declined year-on-year in September. However, the improvement in retail sales in September once again shows that China must be viewed in two ways, one is the slowdown in manufacturing, and the other is the strong service industry.
Retail sales in September 2015 increased by 10.9% year-on-year, compared with 10.8% in August. The research data of FT Confidential Research, the research service department of the Financial Times, also reflects such positive signs. The data shows that 56.7% of the respondents increased their spending in September, up from 54.9 in August. %.
Shen Jianguang, chief Asia economist at Mizuho Securities, predicts that China’s official GDP growth rate in the fourth quarter will be higher than 7% after the official GDP data slowed to 6.9% in the third quarter of last year. Like many other Chinese analysts, he believes that official growth data significantly overestimates the actual level of China's GDP growth.
However, Shen Jianguang said that China's economic growth is expected to really stabilize. The Chinese government will further introduce monetary easing measures and require banks to increase lending, which will promote China's economic growth.
Others disagree. JPMorgan analyst David Hensley believes that as the Chinese government’s fiscal stimulus takes effect, China’s infrastructure spending will accelerate, and GDP growth will be in the range of 6% to 6.5%. Stabilize. But Hensley said that so far there are no signs of this, which led to the fourth quarter GDP growth forecast of 6.3%.
No positive signs in Latin America
Although some analysts say that commodity prices should be supported by signs of stabilization in China's economic growth, which will benefit Latin American economies that dominate commodity production such as Brazil, the economic prospects of Latin America's largest economies are still dragged down by domestic problems.
Monica Defend, Director of Global Asset Allocation Research at Pioneer Investments, wrote: “The (Brazil) economy is still in a terrible situation. The country’s economy is in deep recession, and despite the aggressive measures taken by the Central Bank of Brazil. Hawkish stance, but inflation remains high. The outlook is not optimistic."
To make matters worse, the political risk remains high because Brazil's President Dilma Rousseff may be impeached.
In August 2015, Standard & Poor's downgraded Brazil's foreign currency investment rating to "junk", citing Brazil's adjustment of budget targets and the uncertainty surrounding the country's government and Congress' commitments to austerity plans.
In contrast, Mexico’s prospects appear to be relatively stable. Jorge O. Mariscal, chief investment officer for emerging markets at UBS, predicts that corporate earnings will maintain high single-digit growth, but the volatility of the peso against the dollar adds to the uncertainty. Therefore, the third quarter earnings will show a positive trend, but this will not be enough to show that Mexico should be optimistic.