Q4 shaping up to be a mixed bag - Capital Economics
Emerging Markets Economics

Q4 shaping up to be a mixed bag

Emerging Markets Activity Monitor
Written by Edward Glossop
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The latest activity and mobility data are consistent with economies in Latin America, India and South Africa registering another quarter of positive growth in Q4, and those in Central & Eastern Europe (CEE) suffering renewed contractions. But we still think that the 12-18m outlook for CEE is brighter than most other EM regions, and that the prospects for much of Latin America, India and South Africa are weaker.

  • The latest activity and mobility data are consistent with economies in Latin America, India and South Africa registering another quarter of positive growth in Q4, and those in Central & Eastern Europe (CEE) suffering renewed contractions. But we still think that the 12-18m outlook for CEE is brighter than most other EM regions, and that the prospects for much of Latin America, India and South Africa are weaker.
  • Q3 GDP figures released so far have shown strong q/q growth rates, typically of 5-10%. Unsurprisingly, the biggest gains came in places that suffered the steepest falls in Q2 (Peru, Malaysia and Mexico). And the smallest gains came in those where falls in Q2 were more modest (Russia, Korea and Thailand).
  • The year-on-year figures help to smooth out some of this volatility. These data show that GDP was still down by 5-10% in many EMs compared to a year ago. Output was down by as much as 11.5% in the Philippines. In contrast, GDP in China, Taiwan, and Vietnam was higher in Q3 than it was a year ago.
  • We have only limited hard data for October. Figures for China suggest that GDP growth there hit a three-year high in that month. We estimate that output in China is now above the level it would’ve been had the virus not happened. October activity data from Russia were disappointing. And while Polish industrial production grew, retail sales suffered a renewed drop as lockdown measures started to bite.
  • Mobility data point to a mixed Q4 for EMs. Chart 1 shows changes in the average level of mobility so far in Q4 compared to Q3. Mobility has fallen sharply in much of CEE, most notably in the Czech Republic and Poland. In contrast, as restrictions and outbreaks have eased, mobility has risen in much of Latin America, most notably Chile, as well as India and South Africa.
  • Mapping changes in mobility to changes in GDP is not an exact science. The mobility data aren’t seasonally adjusted and there are various reasons why higher mobility might not translate into higher spending on goods and services. But the relationship with GDP was reasonably good in Q2 and Q3. (See Chart 2.) Using these relationships and the recent mobility changes, it looks like GDP in CEE is on course to fall by 2-3% q/q in Q4, but may expand by 2-4% q/q in much of Latin America, India and South Africa.
  • Despite another quarter of positive growth in Q4, we think the 12-18m outlook for much of Latin America, India, the Middle East and Africa remains challenging. Vaccine pre-orders in most cases have been limited. And in some places, distribution challenges will be substantial. Moreover, there will still be long term consequences from the crisis, related to labour market scarring and the legacy of higher public debt. We’re in the process of revising our forecasts but generally speaking, we think that GDP in these EMs will still be 3-5% below its pre-virus path by the end of 2022.
  • In contrast, the 12-18m outlook for CEE is brighter. Fiscal policy has been loosened substantially, which is limiting the hit to incomes. Moreover, CEE economies are among the best-placed to benefit from the roll-out of vaccines. We think that GDP in these economies is likely to be much closer (perhaps 1-3%) to its pre-virus path by the end of 2022.

Chart 1: % Change in Average Level of Mobility so far in Q4 vs. Q3

Chart 2: Changes in GDP vs. Changes in Mobility

Sources: Refinitiv, Google, Capital Economics

Sources: Refinitiv, Google, Capital Economics


Edward Glossop, Senior Emerging Markets Economist, edward.glossop@capitaleconomics.com