Emerging markets come of age

 Key points • Emerging nations carve their own path • Most important contributors to global economic growth • Trading patterns around the world changing • China pivotal to developments • Inflationary pressures begin to return   Summary The balance of global economic power shifted in 2009. Decisions made in the US and the developed nations of Western Europe are no longer driving global economic development. As the world began heaving itself out of the global crisis, it was emerging markets that led the way, according to HSBC’s Emerging Markets Insights, the bank’s annual report based on its Emerging Markets Index (EMI).    Looking to 2010, the data suggests that emerging nations will continue to drive the global economic recovery. HSBC EMI data for the final quarter of 2009 showed manufacturing and services output in emerging market economies growing at the fastest rate since Q4 2007.  

HSBC estimates that emerging markets GDP in 2010 will grow at 6.2% compared to 1.9% for developed nations.   The driving force behind much of the success of emerging markets is China. Chinese fiscal stimuli has seen spending aimed at infrastructure projects resulting in commodity prices – usually the first to fall in a financial crisis – remaining remarkably resilient. This in turn has benefited a number of emerging nations, providing them with a degree of economic insulation and fuelling the so-called ‘South-South’ trade.   For China to maintain its rate of growth, it is widely recognized that it needs to stimulate domestic consumption. The government has responded by shifting spending into social welfare. This is expected to release household savings which could boost consumer spending.   The fly in the ointment is inflation as pricing power in some emerging markets makes a return. Nations will respond differently to this pressure with increased interest rates likely to feature. Whatever the response, it is likely to be pursued independently from decisions made in the US or Western Europe.   Michael Geoghegan, Chief Executive of HSBC Holdings, said: “HSBC’s latest report, Emerging Markets Insights, underlines what we, as the world’s largest emerging markets bank, have known for some time – that the centre of economic gravity is shifting from West to East. For HSBC, Asia represents our greatest opportunity with nowhere more strategically important than China.”   Stephen King, HSBC’s Chief Economist, said: “We have reached a tipping point in global economic affairs. No longer is it possible to argue convincingly that the US or European nations determine the agenda for the world economy as a whole. 2009 will surely go down as the year when we both uncovered the scale of the crisis in the developed world and celebrated the resilience of much of the emerging world in the face of what appeared to be a perfect economic storm.”   The combination of HSBC’s Emerging Markets Insights and the recently launched Emerging Markets Index, a powerful new economic barometer, provide an insight into future trends and the health of the global economy.    Together, for the first time, these products track manufacturing and services data in emerging market economies.  These create quarterly and annual data, which is accompanied by expert analysis.    The HSBC Emerging Markets Insights report uses data from HSBC Emerging Market Index, calculated using the long-established PMI data produced by global financial information services company Markit. HSBC announced last year a partnership with Markit to sponsor and produce a number of emerging market PMIs.   The HSBC EMI will be released quarterly and is available via: http://www.hsbc.com/1/2/emergingmarketsindex    The next HSBC EMI will be released on 9th of April 2010.