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Round Up – Emerging Markets & Chinese Trade Concerns

James Boston
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The HSBC manufacturing and services purchasing manager survey confirms sluggish growth in the big 4 BRIC countries. At 51.4 this composite emerging markets index clearly shows a slowing trend over the last four months and signals a compounding of the problems being faced by emerging market economies.

In a similar vein to developed economies, the index is perilously close to, yet just on the right side of 50, a level that distinguishes between expansion and contraction. Expect PMI surveys such as this from all countries to be given heightened significance over the coming months as markets watch for signs that the frail global recovery is under threat.

A Reuters poll of economists on Chinese trade makes concerning reading, it is expected that Chinese export growth will fall by 2% to 2.3% year on year. This is unsurprising and somewhat in keeping with sluggishness in the global economy, more worrying however is the slowdown in Chinese import growth, it is anticipated that this will be reported 5.3% lower at 3.0% year on year. China is still expected to surpass the USA as the world’s largest importer this year but this fall in demand will cause ripples across the globe, particularly for commodity exporters such as Canada and Australia.

A caveat with these figures is that the timing of the Chinese New Year is likely to cause some distortion this year. It doesn’t however explain all of the fall off in economic activity. A slowing in China’s growth is anticipated for 2014, and is in fact somewhat welcomed as it mitigates the overheating prospect in the world’s second largest economy. There is however a valid fear building in the markets that the Chinese slowdown will be greater and more abrupt than previously anticipated. As evidenced by the market turmoil in the latter half of January, markets will continue to overreact to any economic developments in China until greater clarity on this countries prospects transpires.

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