This year’s recovery in emerging market economies has continued in the second quarter, according to the latest EM growth tracker from the Institute of International Finance, an industry group.
It shows GDP growth across emerging markets edging up 0.1 percentage points to 3.4 per cent in April at a quarter-on-quarter seasonally adjusted annual rate, putting growth across EMs 0.4 pp above its 12-month moving average.
If confirmed, the data show EM economies continuing to rebound from a low reached in the first quarter of 2015, when aggregated actual GDP growth fell to 2.5 per cent a year, according to the IIF.
Are EMs on the road to recovery? The idea that EMs are cyclical, to the extent of moving in line with commodity prices, certainly has its followers. But the IIF’s analysts do not buy that.
Hung Tran, the IIF’s director for capital markets, said that EMs had indeed been enjoying a rebound, but doubted it would last.
“What we have been seeing is a short-term cyclical rebound helped along by developed market central banks and by the People’s Bank of China,” he said. “But the long-term structural headwinds are still there and getting stronger.”
He said that the pick-up in economic activity across EMs had been driven by rising commodity prices, driven in turn by demand from China on the back of total credit expansion in China of more than 40 per cent in the first quarter.
“The story is the same,” he said. “The debt overhand has only got bigger. The PBoC and other central banks can provide short-term support here and there but without tackling structural issues they won’t address the real challenge. The bumpy road ahead doesn’t exclude the kind of short-term pick-up we have seen in the past few months.”
The IIF’s EM growth tracker is built from data in three categories: business surveys, hard data and financial variables.
Financial variables showed the strongest growth in April, driven by rising prices for oil and metals and for EM equities and bonds.
Among hard data, trade was the main source of strength, the IIF said, driven by better export growth in Argentina and Indonesia. But the picture was uneven: those two countries plus Brazil and Thailand were the only four out of 10 monitored by the IIF to see growth in merchandise exports over the past three months.
Industrial production was flat: it was positive in China, though less so than previously, while IP in EM ex-China continued to slow, also less so than previously.
Business surveys tracked downwards in April, undoing half of their recovery in March.