Recovery in 3 key economies to support EME growth as China set to slow – NAB

Economic growth in the biggest 5 emerging market economies increased from around 5¼% yoy in March quarter to 5½% in June and rose again slightly in September - the fastest rate of growth for this group for three years, notes the research team at NAB.

Key Quotes

“Most of the improvement since the cyclical low in late 2015 has been driven by Russia and Brazil – as their economies have recovered from deep recessions. In contrast, Indian growth has been disrupted by shifts in domestic economic policy  while China and Indonesia have tracked sideways.” 

“Brazil’s economic recovery has largely been driven by domestic consumption – in part reflecting a recent decline in unemployment (from 13.7% in March 2017 to 12.2% in October) – however it is worth noting that both Brazil and Russia’s overall economies are still smaller than at their previous peaks in 2014. Getting faster growth in Brazil faces challenges, given the sizable increase in public debt since 2014 and proposed austerity measures from the government.”

“Indian economic growth strengthened in Q3 – increasing by 6.3% yoy (compared with 5.7% in the June quarter) – following five quarters of slowing. We anticipate stronger growth in 2018, at 7.1% (compared with 6.4% this year), as the negative impacts of taxation changes and the demonetisation program wash out of the system.”

“Broad measures of industrial production and export volumes across the wider emerging market economies show divergent trends. Growth in industrial production accelerated in late 2016 – from around 3.5% yoy mid-year to around 4¼% yoy in January 2017 – but has largely remained stable across 2017. Trends are mixed across the major economies – with Brazilian output recovering strongly, counter to weaker trends in India and volatility in Russia.”

“Growth in export volumes accelerated across 2017 with the most notable upturn occurring in the third quarter (as volumes had been quite stable through the first half of the year). A recent increase in imports for both advanced and emerging market economies offers opportunities for trade dependent economies across East Asia and Latin America with solid growth in industrial output in key export-driven economies in the former region.”