A closer look at the Delta variant’s threat to recoveries

The spread of the Delta variant of COVID-19 poses a much bigger risk to economic recoveries in emerging markets than in developed markets. India, South Africa, and South East Asia have suffered already or are suffering. And limited vaccine coverage in much of Latin America, other parts of Asia and Africa mean that the threat of future outbreaks will persist. That adds to reasons to expect that GDP will return to its pre-crisis path more slowly than elsewhere.
William Jackson Chief Emerging Markets Economist
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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

More from William Jackson

Latin America Economic Outlook

Not all doom and gloom

Virus outbreaks are easing in much of Latin America which should support activity in the near term. And while vaccination coverage is still weak in most of the region, suggesting there is still a clear risk of further virus waves, economies are becoming increasingly resilient on this front. We think that the pace of the regional recovery will beat most analysts’ expectations in the coming years. Further monetary tightening lies in store but, with headline inflation rates set to drop back in 2022, interest rates probably won’t rise as far as investors are currently pricing into financial markets. Meanwhile, political risks are likely to grow over the coming year, raising debt concerns and putting local financial assets under pressure.

19 July 2021

Latin America Economics Weekly

Brazil’s tax reform, Chilean primary elections

Proposed changes to Brazil’s income tax setup, which aim to cut corporate tax but only partly offset that with an end to exemptions and the introduction of a levy on dividends, add to the view that fiscal risks will resurface. Elsewhere, on Sunday there will be primary elections in Chile to decide the presidential nominees for the left-wing Apruebo Dignidad and centre-right Chile Vamos coalitions. While there is still a lot of uncertainty at this stage, one common theme is that there seems to be broad political support for keeping fiscal policy loose.

16 July 2021

Emerging Markets Economics Chart Book

Shifting towards rate hikes

Falling virus cases, strong economic recoveries and/or inflation worries prompted several more EM central banks – those of Czechia, Chile, Hungary and Mexico – to tighten monetary policy in the past month, joining Russia and Brazil. And a few others, including Korea and Colombia, are likely to follow suit relatively soon. But it’s not a widespread tightening cycle. Low inflation means that many central banks in Asia in particular are still a long way from hiking. And perhaps most notably, the People’s Bank of China, having removed stimulus since late last year, has signalled with a cut to the reserve requirement ratio that it is now focused on lowering financing costs for indebted firms.

15 July 2021
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