Bright start to the year

Emerging markets are in a sweet spot at the moment. Economic growth appears to have accelerated towards 5% y/y in Q4 of last year, led by a rebound in the Chinese economy. At the same time, aside from some increase in food prices, inflation pressures remain thin on the ground. With the threat to EMs from dysfunction in the developed world’s economies apparently subsiding in recent weeks, resurgent risk appetite has boosted financial markets since the turn of the year. But we would caution against getting carried away, not least because, we expect the rebound in EM economic growth to fade this year.