EM risks building as global backdrop worsens

EM GDP growth will be weaker than most expect in 2022 and 2023 as China’s economy rebounds only moderately and activity slows elsewhere. Inflation is set to remain elevated for some time yet, and policy rates will be kept high in Latin America and Central Europe even as hiking cycles draw to a close. Asian central banks had sat out the EM tightening cycle until recently, but several will hike in the second half of 2022, albeit with less aggressive moves than elsewhere. Tighter global financial conditions are also exposing EMs with weak balance sheets. A handful of frontiers are likely to default on sovereign debt, while current account concerns are growing in Chile and parts of CEE.