Global Slowdown – Uneven Pace
November 29, 2022
Read Time 2 MIN
China's activity gauges might worsen in November, but authorities are now targeting the key factors that weigh on near-term growth. Other EMs might not be so fortunate with policy space.
Global Growth
Global slowdown is back in focus, as the market prepares for the release of domestic activity gauges in emerging markets (EM). The preliminary Purchasing Managers Indices (PMIs) in key developed markets (DM) stayed in contraction zone in November (with a big downside across-the-board surprise in the U.S.). Today’s Conference Board consumer confidence in the U.S. was also soft, adding to concerns about a hard landing. Last month, only 50% of major EM PMIs stayed in expansion zone – not the lowest ratio historically (see chart below), but way down from 90% at the end of 2021. And less than a quarter showed an improvement in their respective PMIs in October. All of Central Europe and a big part of LATAM are now expected to expand by less than 1% next year – and some of these countries have the highest inflation rates in EM.
China Growth Revisions
China’s activity gauges will be the first to roll out (in the evening) – in the meantime, reports of vaccination plans for the elderly raised hopes for an orderly reopening, giving a nice boost to Chinese equities, developers’ bonds/High Yield, and the renminbi. The consensus forecast for China’s 2022 GDP growth are still unchanged at 3.3%, but the reopening expectations resulted in a small upside revision of the 2023 growth outlook (to 4.9%). If this scenario were to materialize, China will be among very few countries where the growth rate will strengthen next year.
EM Inflation Targets
Thailand is another member of the exclusive “2023 growth acceleration” club, and it just happens that the central bank will be holding its rate-setting meeting tomorrow. The expected 25bps rate hike would look perfectly reasonable against this backdrop – especially as inflation is still above the target range. However, headline inflation is expected to return to target already in Q2-2023 – a bit earlier than in the rest of EM Asia – and this can ease pressure on monetary authorities to frontload more rate hikes, while making sure that the real policy rate is slightly positive 12 months from now. Goldilocks?
Chart at a Glance: EM Activity Gauges - Heading South
Source: VanEck Research; Bloomberg LP.
