Emerging Markets

Emerging Markets Economics Chart Book

Emerging Markets Economics Chart Book

Inflation concerns build

Inflation has risen sharply across the emerging world in the last few months, prompting much more cautious words from central banks (mainly in Latin America and Emerging Europe), but we expect that EM price pressures will ease in the coming months. The recent spike in energy inflation should unwind soon, while supply constraints that are pushing up inflation for some goods won’t last indefinitely. With demand some way below most EMs’ supply potential, underlying inflation rates should fall back. We’re more concerned about inflation dynamics in Central Europe though, and central banks in Czechia and Hungary could shortly join Russia and Brazil in being among the first to hike rates.

18 June 2021

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 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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Emerging Markets Economics Chart Book

Taper tantrum fears return

EM financial markets have been hit this month by the rise in US Treasury yields, which has re-ignited some concerns about a re-run of the Taper Tantrum. So far, capital outflows from EMs have been relatively small. And financial conditions across the emerging world remain loose – they haven’t tightened by nearly the same extent as they did in 2013. While some EM central banks are shifting into tightening mode, only in Turkey does this really reflect the recent market moves. Elsewhere – notably Brazil and Russia – the prospect of interest rate hikes has much more to do with domestic inflation concerns. Most EM central banks are likely to maintain very loose monetary conditions for some time yet.

Emerging Markets Economics Chart Book

Reasons for cautious optimism

While the mood in EM financial markets has soured a little of late, from an economic standpoint, the past month has brought several positive developments. First, Q4 GDP data released so far have generally been better than expected. Recoveries have been supported by more targeted lockdowns, and businesses have adapted to restrictions. Second, COVID-19 cases have fallen in most places, notably in much of Latin America, South Africa and parts of Emerging Europe. And third, vaccination progress has been encouraging.

23 February 2021

Emerging Markets Economics Chart Book

More weakness still to come for many EMs

The roll-out of COVID-19 vaccines is getting underway across EMs, but in many cases progress has been slow-going. In the meantime, many countries are suffering from worsening outbreaks. New cases are high and/or rising across Latin America, particularly in Brazil where a more virulent variant is circulating and pressuring its healthcare system. It’s a similar story in South Africa. While new cases have fallen in much of Emerging Europe, they remain high in per capita terms. In these places, restrictions will need to remain tight in Q1 and in some cases beyond, which will continue to weigh on activity.

22 January 2021

Emerging Markets Economics Chart Book

Next year’s vaccine boost to vary across countries

The race to secure and approve COVID-19 vaccines is in full swing and, while roll-out will generally be slower in EMs than in DMs, immunisation of vulnerable populations over the next year or so is a realistic goal, which should allow lockdowns to be (largely) lifted. That’s one reason why we now expect a stronger recovery in EM GDP next year (our 2021 EM GDP growth forecast is now 8%, up from 7.4% previously). (See Chart 1.) Performances will vary widely across countries. A few East Asian economies are already back at their pre-crisis trend, and Chile and parts of Eastern Europe may converge pretty soon. But other parts of Latin America, South Asia and Africa may take much longer to return to their pre-crisis trend.

Emerging Markets Economics Chart Book

Monetary policy to remain loose despite vaccines

This month’s positive vaccine news has dramatically improved the near term global economic outlook, but it doesn’t fundamentally alter our dovish view on EM monetary policy. Many EMs have only small (or non-existent) purchase agreements and face distributional hurdles, so near-term recoveries will still be bumpy and uneven as COVID-19 containment measures remain in place. If anything, the likely further improvement in risk appetite strengthens our view for more rate cuts in Mexico, India, Russia and Indonesia. Even in Chile and Central & Eastern Europe, whose economies could benefit most from the roll-out of vaccines, all the signs point to central banks staying focused on keeping policy loose for a prolonged period. Overall, our forecasts remain more dovish than those priced into markets.

20 November 2020
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