First quarter GDP data that have so far been released by EMs have painted a pretty grim picture. In this Update we outline the three key themes that have emerged. The aggregate EM growth slowed further in the first three months of this year and now appears to be running at a post-2009 low. As things stand, 25 of the 34 EMs that release quarterly GDP on a timely basis have so far published data for Q1. For the nine EMs that have yet to publish Q1 data, the GDP Trackers provide a good guide to what has happened. Aggregate EM GDP growth is likely to slowed at 4.0% y/y in Q1, from 4.4% y/y in Q4, expects Capital Economics. This would be the weakest rate of growth since the aftermath of the global financial crisis and the second weakest rate of growth since the Argentine crisis in 2001-02. In Emerging Markets Activity Monitor, which will be published later this week, but the early signs are that growth has continued to weaken in the early part of Q2. The second theme to emerge is that although problems in the BRICs have grabbed most of the headlines, the weakness of Q1 GDP has been widespread. Annual GDP growth has slowed in 21 of the 34 EMs that publish timely data. Those EMs reporting weaker growth include China, where growth dropped from 7.3% y/y in Q4 to a seven-year low of 7.0% y/y on the official figures in Q1, and Russia, which is spiralling into recession. Elsewhere in the BRICs, both Brazil and India will publish Q1 data on Friday this week. Capital Economics forecasts that both will be weaker than in Q4, with the downturn in Brazil likely to be particularly marked. But this is not just a BRICs problem – growth has also slowed in many small and medium-sized EMs. Detailed analysis can be found on our regional EM services, but Mexico as well as much of Asia has already reported weaker growth in Q1, and Turkey is expected to follow suit when it publishes data on 10th June. What’s more, while annual GDP growth accelerated in Thailand and South Africa in Q1, this is entirely due to base effects – in q/q terms growth slowed in both countries. The third and final point to note is that, while bright spots are difficult to find, they do exist. Saudi Arabia looks set to buck the slowdown among oil producers and report faster GDP growth in Q1 thanks to a large fiscal expansion. More generally, Russia and Turkey aside, much of Emerging Europe has reported stronger growth in Q1 compared to Q4. The key here seems to be that a combination of lower oil prices, a reduction in fiscal austerity and strengthening labour markets have provided a boost to domestic demand, thus helping to offset headwinds from the euro-zone. Q1 is likely to prove the high point for growth in these economies, but the forecasts remain relatively upbeat compared to the consensus.
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