One year ago, manufacturing activity in Emerging Markets (EM) open to trade was outperforming other EM, on the back of strong trade growth. Things have changed a lot since then, driven by several trade uncertainties: the U.S.-China trade dispute as well as growing concerns about key sectors such as automobiles and telecommunication services. As a result, the aggregate Manufacturing PMI of open EM has been below the 50-threshold in the last six months (49.1 in February) and hit its worst level since May 2009. Several uncertainties are affecting demand (e.g. environmental rules and decreasing Chinese consumption of cars). As a result, producers have to cope with a high level of inventories, which has put output to the downside. Meanwhile, capital flows have returned to EM (USD30bn on average per month from November to February) thanks to more dovish monetary policy prospects in the U.S. Improving external credit conditions can surely help EM, but with poor translation into growth figures owing to trade uncertainties.
