First signs of EM recovery losing steam - Capital Economics
Emerging Markets Economics

First signs of EM recovery losing steam

Emerging Markets Activity Monitor
Written by Nikhil Sanghani
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Our Mobility Trackers suggest that the EM recovery hit a snag in July, partly due to escalating coronavirus cases and tightening restrictions in some EMs (South Africa, Colombia, Hong Kong). This may form part of a broader trend across the emerging world, suggesting that the road ahead will be long and bumpy.

  • Our Mobility Trackers suggest that the EM recovery hit a snag in July, partly due to escalating coronavirus cases and tightening restrictions in some EMs (South Africa, Colombia, Hong Kong). This may form part of a broader trend across the emerging world, suggesting that the road ahead will be long and bumpy.
  • To recap, the latest hard data confirm that the EM recovery started in May. Our measure of EM retail sales and industrial production rebounded as restrictions were eased across the emerging world, though they were still 10-15% below their levels from a year before. (See Chart 1.) Activity improved in all regions, with Emerging Asia (excluding India) faring best, followed by Emerging Europe. Latin America lagged far behind.
  • The available June data were even stronger. Activity and spending figures show that growth accelerated in China at the end of Q2, and that Poland’s economy staged a robust recovery. Meanwhile, Korea’s GDP held up relatively well over Q2 as a whole. More generally, our high-frequency Mobility Trackers suggest that activity picked up across all regions in June, especially in Emerging Europe. (See Chart 2.)
  • However, our regional trackers began to level off in July. (See Chart 2 again.) Admittedly, we wouldn’t read too much into a few weeks of data, and this could be partly due to seasonal factors (which are not picked up in the trackers). Even so, some of this weakness may reflect the fading of prior pent-up demand.
  • And recoveries appear to have gone into reverse in some EMs. Rising Covid-19 cases in Hong Kong, Thailand, Colombia and South Africa have prompted policymakers to tighten restrictions, which has weighed on activity. (See Chart 3.) It’s feasible there will be a broader pattern of escalating virus cases, localised lockdowns and short-term economic damage in the coming months. Even if governments were unwilling to tighten restrictions in the face of rising caseloads, citizens’ own precautionary behaviour would probably constrain economic activity. In short, then, the EM recovery is unlikely to be a smooth process.
  • For similar reasons, we’re most pessimistic about the outlook for countries still struggling to contain their virus outbreaks. That includes much of Latin America, India and Africa. We expect that GDP in these EMs will be furthest away from their pre-virus trend by the end of 2022. (See Chart 4.)

Chart 1: Aggregate EM Ind. Prod. & Retail Sales (% y/y)

Chart 2: CE Regional Mobility Trackers*

Chart 3: Selected CE Mobility Trackers*

Chart 4: Real GDP at End-2022
(% Difference from Pre-Virus F’casts)

* Trackers show % diff. from Jan.-Feb. 2020 median level, 7d MA.

Sources: Refinitiv, Google, Apple, Moovit, Capital Economics


Nikhil Sanghani, Assistant Economist, nikhil.sanghani@capitaleconomics.com