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Output in emerging market economies contract in July: HSBC

A cargo ship loaded with containers is seen anchored at a port in Qingdao, Shandong province July 10, 2013. REUTERS/China Daily
A cargo ship loaded with containers is seen anchored at a port in Qingdao, Shandong province July 10, 2013. REUTERS/China Daily

LONDON (Reuters) - Business activity across emerging economies contracted for the first time in over four years in July, driven mainly by a drop in manufacturing while services activity stagnated, a survey showed on Tuesday.

It highlighted the growing divergence between activity in the developed world and emerging economies and cast doubt on prospects for a sustained global economic recovery from the financial crisis.

The composite HSBC Emerging Markets index for services and manufacturing fell to 49.4 in July from 50.6 in June and below the 50 mark that separates growth from contraction. It was the first sub-50 reading since April 2009.

The HSBC survey collects data from purchasing managers at about 7,500 firms in 16 emerging markets. The index is calculated using data produced by Markit.

"Emerging markets are not yet feeling a lift from stabilizing demand in the United States, Europe, and Japan," said Frederic Neumann, HSBC's co-head of Asian economic research.

"The main risk for emerging markets at the moment is that the cyclical downturn in manufacturing and softer service sector activity will ultimately lead to a weaker job market."

Output fell across the four largest economies - Brazil, China, Russia and India - in the first broad-based contraction since 2009, HSBC said.

New business also posted its first decline in over four years. China, India and Brazil all received less new work in July, while Russia registered its slowest growth in nearly three years.

Employment across emerging markets was broadly unchanged, for now, while inflationary pressures weakened.

The index for business expectations, however, showed some signs of recovery. The HSBC emerging market future output index rose slightly from June's low but was still the second-lowest figure in 16 months of data collection.

While business expectations in services picked up slightly from June, manufacturing sentiment weakened for the fifth consecutive month, HSBC said. Among the four largest emerging economies, sentiment was weakest in China.

China, the world's second largest economy, is set to grow this year at its weakest pace since 1990 as flagging foreign and domestic demand weighs on exports and factory production. A slowdown in investment has further dragged on growth.

(Reporting by Anirban Nag; Editing by Ruth Pitchford)

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