Emerging markets growth accelerates as selling prices rise at slowest pace in nearly two years

Emerging market growth accelerated into the end of the first quarter of 2025, according to the latest PMI data, as services activity expanded at a faster pace while manufacturing production continued to rise at a modest rate. Higher new business inflows, including export business, supported the latest improvement in activity.

That said, forward-looking indicators provided mixed signals ahead of the tariff announcements at the start of April. On the one hand, new orders expanded at a quicker pace to indicate rising demand. On the other hand, lowered business confidence, coupled with a reduction in staffing levels as capacity constraints eased, pointed to the likelihood of softer near-term output growth.

Amidst the uncertainty surrounding the rise and fall of trade tensions and the corresponding impact on global demand, the upcoming PMI data will be closely watched for the earliest indications regarding economic conditions and business sentiment. Some positive news regarding prices is that inflationary pressures remained subdued, thereby providing emerging market central banks with the room to lower rates further to support growth when the need arises.

Emerging markets continue to outperform the developed world in March

The PMI surveys compiled globally by S&P Global indicated that the rate at which output expanded across the collective emerging markets accelerated for a second successive month in March. The GDP-weighted Emerging Market PMI Output Index rose to 52.6 in March, up from 52.4 in February. This is the highest reading seen since last November and extended the period of expansion that commenced in January 2023.

While developed economies similarly recorded the quickest rise in output so far this year, the rate of growth paled in comparison with emerging markets again. Emerging markets have now outperformed developed economies in each month so far in 2025. Improvements in the service sector were the key reasons for faster business activity expansions across both developed and emerging economies, as global goods output growth slowed on the eve of additional tariff announcements in early April.

Services-driven acceleration in emerging market business activity growth

By sector across the emerging markets, services activity continued to lead growth in March. The rate of services activity expansion was the fastest since last December amid faster inflows of new business. Both the rates of services activity and new business expansion were solid in March. Additionally, export business also increased for a fourteenth successive month, though the rate of expansion eased since February.

Meanwhile, emerging market manufacturing output continued to expand at a pace unchanged from the three-month high in February. The rate of expansion nearly matched the long-run average. That said, new order growth slowed alongside export orders in March. In line with the global trend, the softening of manufacturing new orders growth reflected the easing of front-loading of goods orders ahead of potential US tariffs at the end of the first quarter. Still, the rise in export orders in Asia excluding Japan and mainland China over the first three months of 2025 was the strongest quarterly gain since Q2 2021.

India leads output growth among emerging economies with strongest expansion in seven months

Only three of the four major 'BRIC' emerging market economies saw output rise in March, with business activity in Russia falling for the first time since last September amidst a pullback in manufacturing sector performance.

India continued to lead the expansion in March. Moreover the rate at which India expanded was steep and the fastest in seven months, attributed to stronger manufacturing output growth even as export orders growth softened. This was followed by Brazil, where business activity recorded a second successive monthly expansion with a solid increase in manufacturing production and the fastest increase in services activity in four months.

Finally, mainland China was ranked third, but had similarly experienced an acceleration in growth amid a broad-based pick up in activity in both the manufacturing and service sectors. However, in all cases bar Russia, business confidence softened since February as the threat of higher tariffs loomed.

Forward-looking indicators provide mixed signals for near-term performance ahead of tariff turmoil

While incoming new orders expanded at a quicker pace for emerging markets, this was again attributed mainly to improvements in the service sector as manufacturing new orders growth decelerated again in March. At the same time, business confidence across emerging markets fell at the end of the first quarter, as both manufacturing and service sector business optimism waned. Confidence levels across both sectors notably slipped further below their respective long-run averages to hint at below average optimism regarding output in the next 12 months.

According to comments from PMI survey panellists, concerns over the impact of US tariffs on growth dampened sentiment in March. As further uncertainty pertaining to US tariffs has unfolded thus far in April, we will be looking to the upcoming releases for the corresponding impact on growth and sentiment.

Amid all the tariff-related changes in behaviour, including the front loading of goods orders ahead of potential tariffs, the backlogs of work index serves as a beacon in providing clear insights into capacity utilisation and investment. Latest data showed that emerging market backlogs rose in the four months leading up to March, but stalled during the latest survey period, corresponding to the trend of front-loading post the US election result announcement in November. The stalling of the build-up in backlogs in March also coincided with a marginal reduction in staffing levels across emerging markets, altogether hinting at potentially softer conditions in the months ahead with the lack of capacity pressure.

Input cost and output price inflation both fall in March

Ahead of the series of tariff updates thus far in April, March's PMI data showed that price pressures eased for emerging market firms. Average input costs increased at the slowest pace since June 2020 as both manufacturers and service providers reported slower cost inflation. Manufacturing input prices notably rose at the slowest rate in the current 21-month sequence with firms mentioning increased competition among suppliers. This contrasted with rising cost inflation for goods in developed markets, where the US pushed up the index with the highest input price inflation worldwide in March.

As a result of a softer increase in costs, emerging market average selling prices rose at the slowest pace in nearly two years. Moreover, the rate of inflation was only marginal, having receded across both goods and services. The trend here alludes to subdued inflation in emerging markets in the months ahead and support any further lowering of interest rates, especially in the face of rising threats to growth amid the lingering uncertainty surrounding tariffs.

Access the full press release here.

Jingyi Pan, Economics Associate Director, S&P Global Market Intelligence

jingyi.pan@spglobal.com

Purchasing Managers' Index™ (PMI^®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.