EM Growth Tracker

April 2017
May 10, 2017

Scott Farnham, Senior Research Analyst, sfarnham@iif.com, +1 202 857 3653

 EM Growth Tracker dips to 6.0% 3m/3m sa ar in April

 Weaker industrial production growth weighs on the overall Tracker…
 … as strong trade data continues to point towards elevated activity
 Business sentiment has been more mixed, while lower oil and metals prices could be areas of concern
 All three regional Trackers declined from March to April

GROWTH TRACKER DIPS AFTER 5-MONTH RISE

Our EM Growth Tracker fell from a five-year high in April Chart 1: Growth Tracker dips, but trend is still strong
after five months of advances. Some moderation was to be Change (%), sa ar
expected, as the sharp rise over past months seemed unsus- 7
Estimated/forecast EM GDP, q/q
tainable. Our tracking model indicates that real GDP growth
across emerging markets was 6.0% on a 3m/3m sa ar basis, 6 Growth Tracker, 3m/3m
down from 6.8% in March – the largest monthly decline
since 2012 during the euro area debt crisis. However, the un- 5
derlying situation is quite different. Back in mid-2012,
Growth Tracker 12mma
emerging markets were in the middle of the worst quarter of
4
growth since the financial crisis, and the Tracker was about
half of the current level. Currently, the Tracker still indicates
3
a high pace of growth, and the overall trend is clearly upward
(Chart 1). Separately, our bottom-up growth forecast for the
second quarter confirms this rising trend, currently at 5.0% 2
Apr 15 Oct 15 Apr 16 Oct 16 Apr 17
q/q sa ar. If that holds, Q2 would be the best quarter for EM
real GDP growth since Q3 of 2013. Source: IIF

Industrial production growth slows

A marked pickup in hard data (industrial production and Chart 2: Hard data stumble, dragging Tracker lower
trade) has been the main driver of the Growth Tracker in re-
Contributions to growth (pp), 3m/3m sa ar
cent months, but that impulse weakened in April as IP 7
growth stalled (Chart 2). EM ex. China IP growth slowed to Financial Variables
Total
6 Business Surveys
a five month low of just 1.0% on a 3m/3m sa ar basis (Chart
Hard Data
3). Russia and Singapore are behind the weakness, with Rus- 5
sia contracting for the second straight month, while Singa-
4
pore IP growth dropped into negative territory for the first
time since last September. Conversely, Poland and China 3
had strong prints, both improving to multi-year highs.
2
Merchandise trade data remain solid 1
Trade volume data – released with more of a time lag than
the nominal data we include in our Tracker– have supported 0
Apr 15 Oct 15 Apr 16 Oct 16 Apr 17
the narrative of a resurgence in trade, as data from the CPB
World Trade Monitor show EM trade growth at a seven-year Source: IIF
high through February (Chart 4). The latest data on nominal
Chart 3: IP growth ex. China slows further
merchandise trade continue to show strengthening activity.
The pace of export growth remained in double-digits in the 3m/3m change (%), sa ar
majority of countries in our sample, with key markets such 12

as Brazil, India, and South Korea leading the way. Overall, 10

nine of the ten countries whose exports factor into our model 8 China
saw positive growth over the past three months. Import 6
growth rates, a proxy for domestic demand, strengthened 4
across most countries. However, import growth in China 2 EM ex. China*
slowed to the lowest in nearly a year, which can be a sign of 0
impending softening across EMs. Still, all eight countries -2
whose imports factor into our model saw positive growth -4
over the past three months for the second consecutive
-6
month.
-8
Mar 15 Sep 15 Mar 16 Sep 16 Mar 17
Business sentiment has been more mixed
Source: Haver, IIF. *BR, KO, PL, SG, TW, RU (GDP-weighted)
PMI indicators – an important component of the business
survey index – slowed some in April, but the number of var-
iables in our model in expansion territory remained at nine
Chart 4: Trade data remain strong
(out of eleven). Out of those nine countries in expansion, six
saw declining levels from March to April. Manufacturing Change (%), 3m/3m sa ar # of countries expanding*
25 10
PMI in China and Russia both dropped to lowest level since Nominal exports, rhs
20 Nominal imports, rhs 9
late summer 2016, just above the breakeven point. The US
8
ISM manufacturing PMI – a proxy for mature market senti- 15 EM trade volume growth 7
ment – also declined to a year-to-date low of 54.8.
10 6
Financial markets show some weakness 5 5
EM FX and equities continued perform well through April, 4
0
helped by a weaker USD and attractive valuations, respec- 3
tively. However, the decline in oil prices and industrial met- -5
2
als prices will challenge commodity exporters. -10 1
-15 0
Regional Trackers decline across the board
Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17
Our Tracker for Latin America declined to 3.9% 3m/3m sa
Source: CPB World Trade Monitor, Haver, IIF. *Positive growth
ar in April after four months of marked improvement. on a 3m/3m saar basis for merchandise exports (10 countries)
Weaker industrial metals prices and marginally slower trade and imports (8 countries).
growth in Mexico were the main reasons behind the decline.
Chart 5: Regional Trackers catch their breath
Similarly, our EMEA Tracker dipped to 3.3% in April on the
back of some weaker data out of Russia and lower commod- 3m/3m change (%), sa ar
9
ity prices. EM Asia

Our EM Asia Tracker inched down to a still very impressive 6

8.6% in April (Chart 5). Hard data remained supportive out- EMEA
side of Chinese imports, but some softer PMIs and lower
commodity prices dragged the regional Tracker marginally 3
lower. This is broadly in line with our bottom-up Q2 growth
forecast declining to 5.9% from 6.5% in Q1.
0 Latin America

-3
Apr 15 Oct 15 Apr 16 Oct 16 Apr 17
Source: IIF

iif.com © Copyright 2017. The Institute of International Finance, Inc. All rights reserved. Page 2