Recent numbers on consumer spending suggest that the Emerging Market consumer may be much more pressed than in the same period in 2008/09, reflecting expensive domestic credit and falling consumer sentiment in emerging markets.
In China, consumer spending, which was punted as the main driver of Chinese growth during the global recession, is at a level below that seen in early 2008. Retail sales slowed to 10.7% in July, the lowest since February 2008, while bank credit slowed to 16.6% year-on-year in July, the lowest rate since November 2008 before it grew on the back of monetary easing.
Brazil’s bank credit also continued its slow decline, reaching 19.8% year-on-year in July from 21% in April. Retail sales in Brazil showed a below average growth of 6.7% in May, from April’s 9.9% and the peak of 16% in the upward cycle. Retail production growth in Brazil fell from a growth rate of 9.85% year-on-year in April to 9.19% in May. In China, this rate fell from 11.32% in April to 10.69% year-on-year in June.
On the other hand, although in decline, industrial production seems to be slightly more resilient, which in part explains commodity prices. In China, industrial production slowed marginally to 14% year-on year in July from 15.1%.
According to India’s Central Statistical Organization, Industrial output in India rose 8.8% year-on-year (y/y) during July 2011, a sharp rebound from the weakening experienced in the previous two months, with 5.6%y/y recorded in May. Consumer goods output barely showed any uptick in growth however, expanding 1.6% y/y in June. Production of consumer durables grew at the slowest pace in two years.
It appears that monetary tightening has had a strong effect on credit growth and consumption. Since the beginning of the year, Brazil, India and China have increased policy rates by 150, 125 and 125 basis points respectively. This aggressive tightening, in an effort to cool down these economies, has indeed had an effect on slowing down expenditure, although inflation is still stubbornly high, averaging 7.5% in these economies.
Xhanti Payi
Assistant Economist
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