The latest hard activity figures suggest that EM growth held up well going into Q2, but that headwinds to the macroeconomic outlook are starting to build. The most recent trade figure show that EM export growth was slowing even before the latest fears of a trade war between the US and China increased this month. Leading indicators point to further weakness in export sectors. Our financial conditions indicators suggest that financial conditions have tightened in much of the EM world. While the shift was, unsurprisingly, most dramatic in Argentina and Turkey (which are both set for recessions) conditions also tightened in other EMs, including South Africa, Brazil, and Mexico. Forward-looking surveys suggest that things will continue to weaken over the coming months, supporting our view that overall EM growth will soften in 2018.
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