We have expressed our love in PMI data before. Today, we will try to employ it in our nowcasting exercise, which we will try to estimate current growth in emerging markets (EM’s).
We start with calculating a composite GDP growth rate and PMI for 13 selected EM’s(*), taking the PPP GDP weighted average of individual countries. Next we use the quarterly average of composite PMI as the explanatory variable in an OLS model, with EM GDP growth at the left side. The results confirm the high correlation (0.85) between two series. Here, we want to note that a composite PMI we had calculated for Advanced Economies has failed to stay in the model, until its’ fourth lag.
Our estimates show that EM economies has continued to pick up during the first quarter, with estimated GDP growth increasing to 5,1%, compared to 4,9% in 4Q2016. This is in tandem with the facts that the signs of recovery in China spilling over to other Asian economies and commodity exporters. Furthermore, Brazil and especially Russia is crawling out of recession. Finally, considering that we were yet to see the effects of Trumponomics, as well as the pick-up in EU and Japan, it is not hard to expect a good 2017 for EM economies.
We will continue to nowcast EM growth in the coming months, while we try to further develop our model, in the coming months.
(*): China, India, Indonesia, S. Korea, Taiwan, Brazil, Mexico, Hungary, Poland, Czechia, Russia, Turkey and S. Africa. These countries make up %75 of the whole EM economies. We have used the averages of two seperate PMI data, which are announced for each of China, Mexico and S. Africa.