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Where are frontier sovereign debt risks greatest?

The precipitous decline in Sri Lanka’s foreign exchange reserves means the risk of a near-term sovereign debt default is increasing. Elsewhere, Tunisia also stands out on account of its public debt problems. Fiscal challenges look severe in Ghana, Oman and Bahrain, although crunch points are a few years away.
William Jackson Chief Emerging Markets Economist
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Emerging Markets Economics Chart Book

Asia joins the EM rate hike club

Upside surprises to inflation coupled with a hawkish Fed have prompted aggressive monetary policy responses by central banks across the emerging world over the past month. Policymakers in Czechia, Romania, Chile and Egypt raised interest rates by more than expected while Mexico’s central bank appears to be shifting its tightening cycle into a higher gear. Meanwhile, a handful of Asian central banks kicked off their tightening cycles, with India, Malaysia and the Philippines raising interest rates. Looking ahead, we think tightening cycles in Emerging Europe and Latin America have a bit further to run, while policy normalisation in Asia is likely to be gradual. The key exception is China where policy is likely to be loosened a bit further, although a renewed round of large-scale stimulus seems off the cards. LatAm Drop-In (26th May, 10:00 ET/15:00 BST): Join our 20-minute briefing about Colombia’s election and other regional political and fiscal risks – including Lula vs Bolsonaro in October. Register here.

23 May 2022

Emerging Markets Economics Update

Emerging Markets Capital Flows Monitor

Net capital outflows from EMs appear to have picked up over the past few weeks amid the general risk-off mood in global financial markets. This is a worrying development for countries with fragile external positions, notably Turkey and some smaller frontier economies. But most major EMs are much better placed to cope with a period of capital outflows.

18 May 2022

Emerging Markets Economics Update

Inflation surge not just a food and energy story

Higher food and energy prices go some way to explaining the rise in headline inflation rates across the emerging world, but this is only part of the story. Core inflation has also jumped in many EMs, especially in Emerging Europe and Latin America. This will keep central banks in both regions in tightening mode. With inflation in Asia and South Africa more subdued, tightening cycles there will be more gradual. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

16 May 2022

More from William Jackson

Latin America Data Response

Mexico Industrial Production (Sep.)

The surprise 1.4% m/m drop in Mexican industrial production in September in large part reflects auto sector woes and suggests that the flash Q3 GDP estimate of -0.2% q/q may be revised down. This release adds to our view that Banxico will opt for a modest 25bp hike in the policy rate (to 5.00%) when it meets later today.

11 November 2021

Latin America Data Response

Brazil IPCA (Oct.)

The larger-than-expected jump in Brazilian inflation, to 10.7% y/y, last month, coming alongside a rise in inflation expectations and continued fiscal risks, increases the likelihood that Copom ups the pace of tightening (from the 150bp step in October) when it meets in early December.

10 November 2021

Latin America Economics Update

Does Brazil’s inverted yield curve point to a recession?

Brazil’s inverted yield curve has raised concerns that the economy may be on the brink of a recession, but it doesn’t have a particularly good track record as a leading indicator for economic downturns in the country. For our part, while downside risks to the growth outlook are building, we think it’s more likely that economic growth will slow to a crawl than turn negative in 2022.

4 November 2021
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