The Delta variant and EM tourism troubles

The rapid spread of the Delta variant of the coronavirus adds to reasons to think that lacklustre economic recoveries lie in store for tourism-dependent economies in Africa, parts of the Middle East and South-East Asia. The weakness of tourism also threatens to add to balance of payments strains in a handful of EMs – particularly Tunisia, but also Turkey and Sri Lanka.
Shilan Shah Senior India Economist
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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

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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

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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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SDR allocation a positive but won’t solve debt woes

The $650bn allocation of IMF Special Drawing Rights (SDRs) that was finally signed off by the IMF yesterday should provide welcome relief to some frontier markets such as Ghana and Kenya that still face very high foreign borrowing costs. But it won’t solve the underlying problems in EMs where debt dynamics look unsustainable, such as Tunisia and Argentina.

3 August 2021

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Asset sales delay will create a fiscal hole

The postponement of the planned privatisation of two state-owned banks to next year has dealt an all-too-familiar blow to the Finance Ministry’s hopes of raising significant revenues from asset sales in FY21/22. Rather than relaxing the overall fiscal deficit target, we expect the Finance Ministry to opt to make up for the revenue shortfall by reducing spending, which would weigh on the economic recovery.

3 August 2021

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Bankruptcy code upgrade, RBI meeting

The amendments to the Insolvency and Bankruptcy Code (IBC) that were approved in the Lok Sabha (lower house of parliament) this week could provide much-needed support to India’s banking sector. But there's no guarantee that they will pass through the Rajya Sabha. Next week, we think interest rates will be left unchanged at the conclusion of the RBI's policy meeting on Friday as it remains focused on supporting the economic recovery.
 

30 July 2021
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