JEDDAH: Emerging market growth eased slightly in the first quarter of 2011, reflecting slower expansion in both manufacturing and services as emerging market companies contend with an ever higher cost burden, the quarterly SABB HSBC Emerging Markets Index (EMI) said Sunday. As forecast by the previous HSBC EMI, inflation presents the key risk to growth in 2011. Input cost inflation across the emerging world quickened to its strongest level in almost three years, reflecting the boost to commodity prices from infrastructure investment, higher food prices due to demand-supply imbalances and the global impact of monetary policy in the US. The EMI dipped to 55.0 from 55.7, but remained broadly in line with the long-run series average of 54.9. The moderation in emerging market growth reflected slower expansion in both services and manufacturing, with growth in the former hitting a near two-year low. Manufacturers recorded a faster rate of expansion than service providers for the second quarter in succession. Factories across Eastern Europe remained busy in the first quarter, with production growth hitting series-record highs in the Czech Republic and Turkey (the latter for a second successive quarter). Russia saw manufacturing output rise at the strongest rate in three years, while growth held steady at a near-record rate in India. Taiwanese and South Korean manufacturers saw a strong rebound in activity but Singapore saw only a slight expansion in output, and growth eased markedly in China. Growth of manufacturing production was supported by a continued expansion of new export business, which increased at the fastest rate in three quarters during Q1. However, the rate of expansion was much weaker than that seen one year earlier. The Czech Republic, India, Poland, Turkey and Taiwan all recorded steep increases in new export orders, while growth was solid in Hong Kong, Saudi Arabia and South Korea. In contrast, growth was only slight in Brazil and China. Service sector activity grew at a sub-par rate in Q1, with growth easing to a seven-quarter low. This reflected slower expansion in China and Russia, with the former registering the weakest increase in business activity since the start of the series in Q4 2005. Brazil recorded a moderate expansion, while India again led the pack, with growth the highest in three quarters. Emerging market service providers remain confident about the one-year business outlook. Positive sentiment in the Indian service sector was the highest for three years, while Russian business optimism was broadly in line with the long-run trend. In contrast, Business Expectations indexes for Brazil and China were around eight index points lower than their respective long-run trends, continuing the trend seen in the fourth quarter of 2010. Input cost inflation across the emerging world quickened to the strongest since Q2 2008. Cost inflation in services quickened to a two-and-a-half year high in the first quarter, with the rise in the relevant index among the largest in the series history. Meanwhile, manufacturing firms recorded the third-fastest rise in the average cost of their purchases since the start of the series in Q2 2004. Cost inflation quickened across three of the big-four emerging markets, with China the only exception after it saw strong inflation in the previous quarter. India registered a series record increase, while Brazil and Russia saw nine- and eleven-quarter inflationary highs respectively. The rate of output price inflation accelerated to the sharpest in almost three years during Q1 2011, as firms passed on rapidly rising input costs to clients through increased charges.
