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Economic Research: Emerging Markets Real-Time Data: Activity Picked Up In Early 2023 Amid Global Macro Crosscurrents


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Economic Research: Emerging Markets Real-Time Data: Activity Picked Up In Early 2023 Amid Global Macro Crosscurrents

Indicator Summary

Since our last publication ("Activity Continues To Wane With Weakening Demand And Tighter Financial Conditions," Nov. 10, 2022) in this series, high-frequency indicators in emerging markets (EMs) improved slightly following the deceleration in activities in the fourth quarter of 2022, as China reopened and softening inflation helping many EM countries. There are signs that industries across most core emerging market countries have fared better, so far, this year. However, forecasted growth slowdown in many advanced economies--especially in the U.S. and Europe—and continues to challenge growth prospects in many EMs over the coming quarters.

The latest high-frequency indicators in China suggest activity picked up as restrictions eased. In addition, the Lunar New Year holiday also boosted mobility. International air traffic jumped significantly in the first two months of the year, driven by Chinese tourists. More than nine million passengers traveled by air during the first six days of the Chinese New Year holiday--an increase of 80% compared with the same period last year. Overall, emerging market economies are also rebalancing household spending from goods to services like in the advanced economies, and China is pulling forward the service-led growth tailwind.

Meanwhile, overall commodity prices continued to slide on the back of weaker global demand for non-energy commodities. Still, within non-energy prices, metal prices have increased since the reopening of the Chinese economy last November as it is the largest importer of metals globally. Energy prices have come down after skyrocketing last year (especially coal and natural gas) but have settled within a range higher than pre-pandemic (2015-2019). The drop in commodity prices (especially food commodities) augurs well for putting a lid on headline inflation for now, although one year after Russia-Ukraine conflict upended agricultural commodity markets, food prices remain elevated and at risk of a reversal after retreating from their record highs in early 2022.

The U.S. Federal Reserve's policy (and future path) remains an important driver of exchange rates in emerging markets. Following last November's Federal Open Market Committee (FOMC) meeting, few EM currencies strengthened against the U.S. dollar as the financial market participants expected the Fed might be slowing down the pace of its rate hike and priced in a (lower) terminal rate no more than 5%. However, the early February FOMC meeting changed that sentiment as the Fed communicated a more hawkish than expected path on the back of strong labor market conditions and the underlying strength in the consumer price index. Non-resident portfolio flows (both equity and debt) reported by IIF slowed but was still positive, on net, in February for Ems, excluding China. But the later part of the month and March has seen fears of persistent inflation and a hawkish monetary response reignited which likely capped the positive momentum in flows. In March, markets have ramped up tightening expectations on both sides of the Atlantic after hawkish comments from ECB's Holzmann, BoE's Mann, and Fed's Powell this week, reitering ongoing concern over persistent inflation pressures. Official rates are expected to stay "higher for longer" than expected on both sides of the Atlantic.

Most EM central banks' interest rate hikes have outpaced those of developed markets, to tame rising inflationary and portfolio capital outflow pressure. Pressure on capital outflows remain as the U.S. Federal Reserve and other advanced economy central banks have yet to signal pause in rate hikes--even as many EM central banks, particularly Brazil, Chile, Poland, and Hungary, have already signaled a pause in their rate hikes and perhaps already peaked (in nominal terms) in their current monetary policy rate cycle.

The fast-moving nature of global risks spells a need for more timely data to supplement traditional economic indicators. The charts below illuminate aspects of the recovery and expansion across EMs.


Recent economic activity data displays a pick-up in economic growth after a slowdown in the fourth quarter, as we earlier reported. The OECD Weekly Tracker of GDP (which applies a machine learning model to a panel of Google Trends data for 46 countries and aggregates information about search behavior related to consumption, labor markets, housing, trade, industrial activity, and economic uncertainty) showed an uptick in growth in the first quarter (data through February) to 3.9% year over year, from 3.2% in the fourth quarter. This is as measured by median GDP growth for 11 emerging market countries (quarterly growth is the average of weekly readings in the quarter). (see chart 1).

Activities rising in countries like India (Asia), Turkey and Poland (EMEA), Argentina, Brazil, Colombia, Chile, and Mexico (Latin America). Whereas activities in South Africa, Hungary (EMEA), and Indonesia (Asia) are slowing down modestly.

Electricity consumption, considered an important barometer of economic activity in a country, was mixed in the region, consistent with the OECD GDP growth tracker. South Africa stands out given the widespread national-level rolling electricity blackouts (also known as load-shedding). Both households and businesses are without power for almost 10 hours per day--making it far worse than even last year, posing a major impediment to capacity utilization. The government has announced the widespread power cut as a 'State of Disaster' recently. Electricity generation continued to tumble the past 17 straight months and turned worse in recent months. In January, generation fell by 8% year over year, following an 8.2% decline in December, making it a severe supply issue. (See chart 3)

Meanwhile, the latest electricity consumption data for Thailand sharply rebounded in the fourth quarter of 2022. And in India, electricity consumption data also indicates persistent strength (see chart 2). Elsewhere in the region, electricity consumption has dimmed, especially in Hungary, Turkey, and Poland. Activity in these countries continues to face headwinds amid spillover effects from the extended Russia-Ukraine war.

Tourist arrivals  International tourism gained momentum, and a few countries have even surpassed the pre-pandemic level in terms of tourist arrivals. Tourism was one of the worst affected sectors by COVID-19 pandemic-led restrictions, with subsequent lockdowns and mobility restrictions because of several variants of the virus compounding the challenges for the sector. As the economies reopened gradually, backed by improved vaccination programs, international tourism had a strong recovery. However, some emerging market countries (especially in Asia) were still largely struggling, owing to China's "zero COVID-19" policy--further restricting mobility, until last November when the Chinese authority abruptly lifted the restrictions amid widespread protests.

The reopening of the Chinese economy has started to boost global tourism as the Chinese tourists remain one of the largest block of tourists in the world. There is a sharp rebound in international tourist arrivals in Thailand and a few other Asian countries. However, in Thailand, Indonesia, and South Africa, although international tourist arrivals have been narrowing the pre-crisis gap at a faster pace, it remains close to 40% below (see chart 4).

International tourist arrivals in Turkey have already surpassed the pre-pandemic level in September last year and as of January this year, they recorded more than 20% compared with the same month in 2019. However, new challenges may lie ahead owing to the recent earthquakes. There has been a steady improvement in foreign tourists' arrivals in Poland as well, which was just 5% below the pre-pandemic level. As tourism continues to steadily progress with business travel, hotel occupancy rates also improved. (see chart 5)

Auto sales.  As we approach the end of the first quarter of 2023, vehicle sales gained further momentum with supply-related issues dissipating and leading to an accelerated production cycle. Vehicle sales in overall emerging markets (excluding China) increased by over 10.8% year over year in January and are estimated to have gone up by 7.3% in February, according to S&P Global Mobility. India continued to outpace its Asian peers with resilient demand for automobiles. Also, the Indian economy is expected to register 7% GDP growth in the financial year 2022-2023–-the highest among major economies in the world. Indonesia also clocked auto sales growth in double digits. The sales tax discount on luxury goods from February last year boosted Indonesia's auto sales demand further, along with its strong economic growth. Vehicle sales in Latin America also remained solid for the past several months, buoyed by double-digit sales growth in Argentina, Brazil, Peru, and Mexico, while sales growth stayed sluggish in Colombia and Chile (see chart 6). However, vehicle sales in Latin America remain well below the pre-pandemic level.

Challenges persist for manufacturers in the region, directly and indirectly, linked with the global vehicle industrial ecosystem amid supply-chain disruptions and the growing risk of advanced economies entering deep recession. Moreover, tighter financing and product availability are likely to weigh on vehicle sales going forward.

Steel production.  As global demand remained subdued, global crude steel production dipped 3.3% in January, compared with the same period last year, to 145.3 million tons. But, in China, with the opening of the economy, steel output also rebounded, rising 2.3%--for the second consecutive month. Notably, India continued to outperform its peers and clocked nearly two years of straight expansion in steel output, which also confirmed the resilience of its economy (see chart 7). However, the pace of expansion has been moderating for the past few months. Moreover, if we exclude India and China, world steel output performance remained lackluster with a double-digit decline in the past consecutive eight months.


Consumer sentiments.  The Ipsos Global Consumer Confidence Index largely remained steady at the end of February at 48.7 from the previous month, but improved from our last publication in November, suggesting consumers feel relatively more optimistic given economic conditions as inflation pressure eased. Consumer mood was upbeat for a few Latin American countries, especially Argentina, Brazil, and Mexico. In Asia, sentiment picked up in China, whereas in India, consumer sentiment nudged down in February but continued to remain at elevated as the Indian economy showed resilience in growth. In Thailand, the latest consumer confidence data suggested steady improvement in consumer optimism on the country's growth as tourist arrivals have picked up sharply in recent months, though they remain more than 44% below the pre-pandemic level. Elsewhere in the region, we see consumer confidence inching down, particularly in Hungary and South Africa (see chart 11).

Business sentiments.  Business sentiments rebounded in February on aggregate, following a weaker activity in the fourth quarter--underpinning improved business conditions. The Purchasing Managers' Index (PMI) from S&P Global Market Intelligence, a closely watched indicator of global manufacturing, showed that industrial activity returned to expansion after four straight monthly contractions, led by emerging markets, especially China. The global manufacturing PMI ticked up to 50.0 in February from 49.1 in January, with the output index reaching its eight months peak at 50.8. New orders improved but remained just below the neutral mark at 49.3. New export orders also stayed below 50, though they showed slight improvement from the previous month. However, the February manufacturing PMI survey showed broad-based improvement. The supply delivery index (50.9) reached above 50 for the first time since July 2019, suggesting persistent improvement in the global supply chain, which helped to ease input price (55.7) pressure again to its lowest level since November 2020.

The global manufacturing output index also rose to 50.8 in February from 48.9 (see chart 8). China, India, and the U.K. drove overall global output, offsetting drag from the U.S. and the EU (excluding the U.K.). Notably, the manufacturing output index in China and the U.K. expanded at its fastest pace since June 2022. This perhaps signals that the global manufacturing activity is likely to perform much better in the first quarter than earlier expected.

Meanwhile, the Emerging Markets median manufacturing output index (excluding China) in our core EM set of countries improved further in February, to 49.6, after posting an average reading of 47.9 the previous three months. This was buoyed by quicker growth in India, Thailand, Indonesia, and Vietnam. New orders largely remained the main driver of output in these countries, indicating that domestic demand is perhaps doing well. Meanwhile, the manufacturing output index stayed in contraction for Mexico, Malaysia, Turkey, Colombia, Brazil, and Poland. Overall, external demand (export orders index) largely remains in contraction, but improving in the EMs if we exclude China, Mexico, and Vietnam. In India, it was just above the neutral mark and was the lowest reading in almost a year (see charts 9 and 10).

Input price pressure in the EMs ticked up in the past two months compared with the fourth quarter of 2022. Input prices increased in India, Vietnam, Brazil, China, and Turkey, while there was slight downward pressure on input prices for countries like Mexico, Indonesia, Colombia, Thailand, and Malaysia. And if we look at output prices, the firms are passing on the price pressure to the consumers, but at a slower pace.

Outside of manufacturing, services sentiment remained solid as we have been reporting the shift in household spending towards services. The global services PMI data had another strong reading in February, increasing to 52.6 from 50.0 in January–-the fastest in eight months. This was mainly supported by resilience in services activities in India, the EU (excluding the U.K.), U.S., China, and the U.K. An uptick in services activities augers well for emerging market tourism-dependent economies like Thailand, Turkey, Indonesia, and South Africa, to name a few.


Commodity prices.  Global commodity prices have been on a downward trend for the past six months on the back of the global economic growth slowdown and recession risk in the U.S. and Europe. Nonetheless, individual commodities are showing different trends because of supply issues. The total commodity price index declined by almost 28% as of March 3, 2023, from its peak last June, while energy prices fell 17% and nonenergy by 36% (see chart 12). However, metal prices have rebounded following the reopening of Chinese economies as copper prices were up by more than 16% since November last year, and industrial metals increased by more than 10% since then (see charts 13 and 14).

Energy price momentum continued to remain downward for coal, natural gas, and crude oil on the back of muted global demand. However, lifting China's "zero COVID-19" policy four months earlier than expected is likely to push demand from China. The Brent crude oil prices have been hovering around $82/barrel for the past two weeks. Prices dropped by over 12% from an average of $94/barrel in October-November last year. This indicates that despite the reopening of China's economy, so far this year, crude oil prices stay around 18% lower than an average of $100/barrel throughout 2022 (see chart 15). Moreover, the Chinese authority's 5% growth target for 2023 is lower than the consensus. The underwhelming growth target set by China, along with the hawkish Federal Reserve, may keep the international crude prices rangebound.

That said, global commodity prices remained almost 36% above the pre-pandemic peak, and energy prices were 39% above their pre-pandemic peak. Meanwhile, overall food prices remain volatile amid supply chain-related issues. Total food prices largely remained stable since November's first week, but wheat prices and soybean oil prices plunged close to 15% each since then, followed by corn which dipped 6%. While rice, sugar, and coffee prices up during the same period (see chart 16)

Shipping costs.  Ocean shipping costs are in a freefall owing to weaker demand. The freight rates soared exceptionally high during the pandemic because lockdowns and port closures caused major supply disruptions. Ports were jammed with containers, and freight rates increased by almost 7x-8x. Situations have been cooling significantly in recent months as it looks like the end of COVID-19-related supply constraints for shippers.

The Freightos global container index fell close to 85% from the 2021 September peak to $1,592 per box as of March 3. Shipping liners, meanwhile, continue to slash prices, while adding up the capacity. A persistent drop in shipping costs bodes well for inflationary pressure to ease further.

Rates, however, varied by route. The cost to ship a 40-foot container on the major trade routes from China to the East Coast of North America and Northern Europe declined by close to 90%, to $2,286 and $1,532 per box respectively (see chart 17). But freight rates for Europe to east coast South America fell by just 15% during the same period.

Financial conditions

Exchange rate dynamics.  China's reopening is set to boost emerging market currencies' performance against the U.S. dollar in the coming months, primarily for commodity exporters, which stand to benefit from the commodity cycle. Several EM currencies appreciated as China scrapped its zero-COVID-19 policy last year, along with a relatively dovish stance of the Fed in November. The Chilean Peso appreciated by around 15%, the Thai Baht by 8.3%, Malaysian Ringgit by 6%. The dollar index dipped by 6.8% between November last year and February this year (See chart 18). It however retreated, as the Fed further raised rates in its February meeting and its hawkish stance on future rate hikes. Both the Nominal Broad U.S. Dollar Index and Nominal Emerging Market Economies U.S. Dollar Indexes ticked up by 2.8% and 2.3% respectively since then. (See chart 19) The South African Rand, Thai Baht, Argentine Peso, and Malaysian Ringgit depreciated by more than 5% since, the Fed's most recent rate hike, indicative of the fact that while commodity cycle nuances (influenced by the Chinese reopening) exist, the Fed's stance continues to drive the primary narrative as emerging markets face risks due to the extended series the U.S Fed rate hikes and the strengthening dollar.

Interest rates and financial stress.  The futures market made a U-turn in its expectations of federal funds rate in the last couple of weeks--currently pricing in for about 100 basis points (was 25bps) more in Federal Reserve rate hikes this year through September. Financial conditions continued to remain tight amid aggressive monetary policy tightening by all major central banks. The Federal Reserve hiked the fed funds rate by 25 basis points (bps) in its last Federal Open Market Committee (FOMC) meeting to 4.50%-4.75%. This was followed by the fourth consecutive 75 bps hike by the Fed. The FOMC statement also suggested that the Fed would continue to raise rates as underlying inflation pressure remains elevated together with strong labor market conditions. Meanwhile, the European Central Bank (ECB) also raised rates by 50 bps in its last policy meeting to 3.0%.

In addition, several central banks in emerging markets, like Brazil, Chile, Poland, and Hungary, have already indicated a pause in their current rate hike cycles. For instance, the Central Bank of Brazil has raised rates cumulatively by 1,175 bps since it started normalization in March 2021, while the Hungarian National Bank increased rates by 1,240 bps since June 2021. Real interest rates in 2022 were below their 2019 average, with Argentina and Turkey being the worst hit (See chart 20). Still, the frontloading of sharp interest hikes by a few EM countries drove real interest rates into positive territory in 2022 such as Brazil and Thailand. The OFR financial stress has eased sharply in the past two months in advanced economies, particularly in the U.S. and other advanced countries. In the emerging market, the financial stress index also stays improved (see chart 21).

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This report does not constitute a rating action.

Chief Economist, Emerging Markets:Satyam Panday, San Francisco + 1 (212) 438 6009;
Research Contributors:Debabrata Das, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai
Prarthana Verma, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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