Low vaccine coverage makes variants the key risk

Low vaccine coverage means that the threat to economic recoveries from the highly-contagious Delta variant is much larger in the emerging world than in developed economies. And EMs will take longer to return to their pre-crisis path of GDP as a result. In much of Asia, this threat adds to reasons to think that central banks will keep monetary policy loose. But inflation concerns are likely to keep policymakers in Emerging Europe and Latin America in tightening mode.
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Emerging Markets Activity Monitor

EM recoveries enter a more difficult phase

Persistent supply shortages, fading reopening boosts and tighter financial conditions all pose headwinds to recoveries in Emerging Europe and Latin America over the coming quarters, while cooling construction activity looks set to weigh on growth in China. By contrast, the near-term outlook has brightened in South East Asia as economies emerge from lockdowns.

25 November 2021

Emerging Markets Economics Update

Headwinds build as financial conditions tighten

The sharp tightening of financial conditions in Latin America and Emerging Europe will add to headwinds facing both regions and feeds into our view that recoveries there are entering a slower phase. Financial conditions in Asia have tightened too, albeit to a much smaller extent. And with most central banks in the region in no rush to raise interest rates, conditions there will probably stay loose for some time yet.

24 November 2021

Emerging Markets Economics Chart Book

EM tightening cycles have further to run

Inflation in the emerging world has generally surprised to the upside in recent months. But while inflation in most parts of Asia remains at levels which central banks are comfortable with, it has risen well above target in much of Emerging Europe and Latin America. Soaring energy (and in some countries food) prices explain a big chunk of the rise in headline rates, although the re-opening of economies and goods shortages have caused core price pressures to intensify too. This has prompted central banks to step on the brakes and raise interest rates, with policymakers in Brazil, Chile and Czechia in particular stepping up the pace of tightening over the past few weeks. Looking ahead, with inflation across both Latin America and Emerging Europe set to remain above central bank targets for a while yet, further rate hikes lie in store. The key exception is Turkey where, under pressure from President Erdogan, the central bank has signalled that it will ease policy again at its next meeting.

19 November 2021

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Emerging Markets Economics Chart Book

Asia now the epicentre

The severe waves of COVID-19 that afflicted Emerging Europe and Latin America earlier in the year are now subsiding and the near-term economic outlook there has brightened. But several Asian economies have become the focus of concern instead. India accounts for about half of total global new virus cases, although the latest figures at least offer hope that the worst may be over. Other Asian economies such as Thailand, Taiwan and Vietnam that had, up till now, controlled the virus very well have suffered a rise in new cases (albeit to still very low levels in the latter two). (See Chart 1.) That is likely to weigh on activity and also serves as a reminder that, for the many EMs where vaccination coverage remains low, the threat of new outbreaks will persist.

19 May 2021

Emerging Markets Economic Outlook

New virus waves to drag on the recovery

The surge in virus cases across large parts of the emerging world and the slow pace of vaccine rollout mean that the headwinds facing the EM recovery are building. EM currencies are likely to see further falls against the dollar this year, but fears of a repeat of the Taper Tantrum look overdone. One consequence is that EM central banks won’t turn to turn to monetary tightening as quickly as most currently expect.

28 April 2021

Emerging Markets Economics Chart Book

Virus outbreaks cloud the outlook

New COVID-19 cases have surged in the emerging world, with India, Emerging Europe and Latin America particularly hard hit. Social distancing measures have been tightened in many countries, which will weigh on activity. The early evidence suggests that the EM recovery had already lost some momentum in Q1 and that’s likely to continue into Q2. Growing headwinds to the economic outlook add to reasons to think that most EM central banks will look through the coming spike in inflation.

21 April 2021
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