Key facts
- Britain's economy grew 0.4% in July, exceeding expectations.
- The services sector showed strength, partially offset by declines in production and construction.
- Artificial intelligence appears to be boosting software development in the UK.
- Emerging economies have shown resilience to an energy shock, with growth slowing moderately.
- Demand for AI-related goods is boosting growth in emerging markets.
- The aggregate manufacturing PMI for emerging countries was 51.4 in June.
Emerging economies have demonstrated resilience in the face of an energy shock, largely avoiding a crisis scenario despite rising oil and gas prices. This stability is partly attributed to the booming artificial intelligence sector, which is driving demand for chips, data centers, and electronic goods. This demand is reshaping external balances and offsetting some of the negative impacts of higher energy costs.
While growth is expected to slow only moderately, with the aggregate manufacturing PMI for emerging countries remaining in expansion territory at 51.4 in June, risks persist. These include the potential for more persistent inflation, possible increases in US Federal Reserve interest rates, ongoing geopolitical tensions, and volatility in commodity prices. The conflict in Iran and the closure of the Strait of Hormuz led to a significant surge in Brent crude prices, increasing by 57% between late February and late April. However, inflationary pressures have so far been less severe than in 2022, partly because energy typically constitutes less than 15% of the CPI basket in emerging countries.
In Asia, a region heavily reliant on Middle Eastern hydrocarbons, authorities have managed risks by diversifying supply sources and mobilizing reserves. Vietnam, in particular, saw its real GDP growth accelerate to +8.4% year-on-year in the second quarter, driven by strong industrial production and exports. China's economic growth, however, slowed to +4.3% year-on-year in Q2, impacted by rising energy prices, reduced public spending, and weak domestic private sector demand.