EMs set for disappointing recovery in 2020 - Capital Economics
Emerging Markets Economics

EMs set for disappointing recovery in 2020

Emerging Markets Activity Monitor
Written by Darren Aw
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EM activity slowed at the start of Q4 and aggregate growth in 2019 as a whole is likely to be the weakest since 2015. Conditions should improve in 2020, but we think growth across many EMs will disappoint.


  • EM activity slowed at the start of Q4 and aggregate growth in 2019 as a whole is likely to be the weakest since 2015. Conditions should improve in 2020, but we think growth across many EMs will disappoint.
  • All but a few of the smaller emerging economies have now released GDP figures for the third quarter. In aggregate, these show that EM GDP growth edged up from 3.6% y/y in Q2 to 3.7% y/y in Q3. This was partly due to an encouraging pick-up in investment growth, which more than offset weaker export growth.
  • However, our Tracker suggests that EM growth dropped to its lowest in three years at the start of Q4. (See Chart 1.) This was mostly due to weaker growth in the larger economies of Emerging Asia. The slowdown in India appears to have continued, and our China Activity Proxy suggests that the economy decelerated in October. (See Chart 2.) Activity weakened across Latin America too, with continued lacklustre growth in Mexico and a protest-related slump in Chile.
  • Timelier data suggest that a strong rebound in the near term is unlikely. Admittedly, November activity and spending data from China pointed to a pick-up in growth. But we think that these figures overstated the strength of the economy and expect growth to soon resume its downward trend. Meanwhile, data from “early reporters” suggest that EM export growth remained soft last month. (See Chart 3.)
  • Stepping back, 2019 has been a poor year for EMs. Aggregate growth has most likely slowed to its weakest pace since 2015. The outlook for 2020 is brighter, with export growth set to recover and the pass-through from this year’s monetary easing keeping credit conditions supportive. We expect that GDP growth will strengthen in most major EMs including India, Brazil and Turkey (albeit on shaky foundations in the latter). China will be the main exception, prompting the People’s Bank to ease policy by more than most expect.
  • Compared to the consensus, we expect growth in some countries, such as Vietnam and Taiwan, to surprise on the upside. But we are particularly downbeat on growth in India, South Africa, Mexico, Colombia and Hong Kong. Overall, the rebound in EM growth next year is likely to be weaker than most anticipate. (See Chart 4.) Our views are outlined in more detail in our Focus, “Key Calls for EMs in 2020”.

Chart 1: Aggregate EM GDP (% y/y)

Chart 2: China Official GDP &
CE China Activity Proxy (% y/y)

Chart 3: Exports of Early Reporters* (US$bn)

Chart 4: Difference Between Capital Economics & Consensus 2020 GDP Growth Forecasts (%-pts)

Sources: Refinitiv, CEIC, Focus Economics, Capital Economics


Darren Aw, Asia Economist, +65 6595 5193, darren.aw@capitaleconomics.com