CarlaMozee

LOS ANGELES (MarketWatch) — Weakness in second-quarter manufacturing production largely contributed to the slowest rate of growth in emerging markets in two years, but the platform for a “soft landing” is being built by battles waged against inflationary pressures, according to a study released Thursday.

The HSBC Emerging Market Index came in at 54.2 for the second quarter, down from 55.0 in the first quarter, HSBC said in its quarterly assessment of purchasing-managers indexes in 16 countries. The current reading is below the long-run series average of 54.8. A reading of 50 or higher indicates expansion.

Apples App Store Anxiety

Rex On Techs: Rex Crum says Apple might be standing on the shoulders of 15 billion App Store downloads, but that doesnt mean it isnt paranoid about its market position.

Growth was hampered by the aftermath of Japan’s devastating earthquake in early March, as well as by the lingering impact from recent inflation and “global economic fragility,” HSBC said.

The pace of manufacturing output pulled back to the slowest pace in three quarters, and rates of production growth eased across the majority of manufacturing sectors that the survey tracks. Production rates in South Africa and Singapore were the two exceptions, it said.

There was a noticeable reduction in the growth of export orders throughout emerging-market economies, which is consistent with what developed nations have experienced, “suggesting world trade growth peaked in the first quarter of the year,” HSBC chief economist Stephen King said in a statement.

Brazil, China and Russia each saw a reduction in new export orders during the quarter, and only “marginal” increases in exports were observed in Turkey and Poland.

Brazil, Russia, India and China make up the so-called BRIC group of the world’s largest emerging markets.

On the services side, HSBC said service providers recorded a slightly faster rise in business activity compared with manufacturers, although the rise was the second-slowest since the second quarter of 2009.

In its first-quarter report, HSBC warned that growth in emerging markets would continue to slow if inflation became entrenched. However, during the second quarter, HSBC said a “cornucopia of quantitative tightening measures” has resulted in the sharpest easing of input cost inflation in two and a half years.

Brazil is among the countries whose monetary policy makers have enacted a variety of measures aimed at reducing inflationary pressures. Hikes this year in the country’s benchmark interest rate have left it at 12.25%, among the highest interest rates in the world.

Tamer price pressures offer the prospect of a soft landing as emerging markets together invest in infrastructure, said HSBC.

“If a soft landing can be achieved, the stage is set for a sustained period of growth across the emerging world, driven by new ‘South-South’ connections,” said King.

Emerging-market countries have been increasingly investing in each other, with HSBC citing an increase in Asian-funded infrastructure projects in Latin America and parts of Africa as an example. HSBC calls the establishment of a new network of economic connections across the emerging world as “The Southern Silk Road.”

“The result of all these changes could easily be a tenfold increase in intra-emerging market trade in the first half of the 21st Century,” King said.

In the manufacturing sector during the April-June period, purchase-price inflation eased to a three-quarter low while, service providers again posted a slower rise in average costs than manufacturers.

With only a modest easing of price pressures in services, the latest data indicated a sharp narrowing of the inflation gap between the two sectors, said HSBC.

Weaker input-price inflation resulted in emerging-market companies raising their output charges at the slowest rate in three quarters.

Meanwhile, a slide in confidence levels among businesses in China and India pushed business optimism among emerging-market service providers to the fourth-lowest level in series history. But optimism in the one-year business outlook reached a six-quarter peak in Brazil, and hit a six-and-a-half year high among Russian service-sector firms, said HSBC.