Updates with post on China growth
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IS CHINA'S EM OUTPERFORMANCE ERA OVER? CAPITAL ECONOMICS SAYS YES
China's days as an emerging market outperformer are numbered as growth is expected to lag EM peers over the coming years, said Shilan Shah, deputy chief EM economist at Capital Economics.
The research firm forecasts slower growth in China compared to other EMs, as growth on the company's 'China Activity Proxy' - a set of "low-profile" activity indicators - is expected to undershoot the EM (excluding China) average.
The only other time Chinese economic growth lagged peers was during the COVID-19 pandemic, even as official GDP figures tend to overstate the true pace of growth, Capital Economics said.
China's economic growth slowed to the weakest pace in a year in the third quarter while investment in the crisis-hit property sector fell 13.9% year-over-year in the first three quarters, data showed last week.
Shah says China's property downturn has "set in motion" the fall in construction activity while high debt and diminishing returns are likely to cause an infrastructure pullback.
This could weigh on commodity-producing EMs, such as metal producers South Africa and Brazil, that are reliant on top consumer China.
However, Citigroup's chief economist for Latin America, Ernesto Revilla, said that commodity prices have of late been comparatively less influenced by Chinese demand, which can reduce the downward impact on EM commodity producers.
Shah sees a group of manufacturers among emerging markets outperforming despite slowing EM and DM income convergence. These include India, Vietnam and Malaysia, among others, as they are well-placed to capture U.S. market from China, provided these countries have a bilateral trade relationship with the U.S.
(Purvi Agarwal)
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