Emerging-Market Growth Slows as Euro Crisis Bites, HSBC Says

Growth in emerging-market economies probably slowed in the second quarter as the euro region’s debt and banking crisis hurts business confidence around the globe, HSBC Plc said, citing a purchasing-managers’ survey.

The HSBC Emerging Markets Index, which is compiled by London-based Markit Economics and tracks conditions at more than 5,000 reporting companies, fell to 53 from 53.6 in the previous three months. The rate of expansion was weaker than the average for the past three years, HSBC said.

The International Monetary Fund will lower its 3.5 percent global-growth forecast for this year in its next update July 16, Managing Director Christine Lagarde said last week. The deepening euro-region crisis is weighing on growth through financial, trade and confidence channels, HSBC said. Brazil, Russia, India and China, the largest emerging markets, known as the BRICs, are also feeling the pinch.

“Developed-world growth is being revised down as has been the case in the last two years,” Murat Ulgen, HSBC’s London-based chief economist for central and eastern Europe and sub-Saharan Africa, said today in an e-mailed statement. “What is different this time though is a visible slowdown in emerging giants, the majority of the BRIC countries, too.”

The MSCI Emerging Markets Index, which has advanced 1.8 percent this year, compared with a 6.7 percent gain for the S&P 500, fell 0.2 percent to 932.55 as of 6:29 a.m. in New York.

Summit ‘Hope’

While last week’s summit of European leaders provided “some rays of hope,” the euro crisis will be prolonged and will continue to weigh on emerging markets as euro-area leaders build a fiscal and banking union, HSBC said.

Even so, emerging markets have “ammunition” for economic stimulus given their healthier public finances and lower debt ratios, making them resilient, HSBC said.

The People’s Bank of China cut its benchmark interest rate June 5 for the second time in a month to spur economic growth, which has decelerated every quarter since the first three months of 2011. Rate-setters in the Czech Republic responded to the risk of contagion from the neighboring euro region by cutting the benchmark rate by a quarter-point to 0.5 percent on June 28.

Brazil’s central bank has slashed the benchmark rate 400 basis points since August to a record low of 8.5 percent and the nation’s government is also considering stimulus measures.

The slowdown in economic growth was led by manufacturing, with Chinese output declining for the past three quarters and Brazil’s output contracting last quarter after recovering in the first three months, HSBC said.

Polish manufacturing fell last quarter for the first time since the global financial crisis began after Lehman Brothers Holdings Inc.’s collapse in 2008, HSBC said. Polish new export orders also had the biggest dropped among the 16 emerging markets surveyed, given a dent in demand from the neighboring euro area, HSBC said.

Emerging-market economic activity hasn’t returned to pre-crisis levels, when the index averaged about 57, HSBC said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE