Omicron sweeps across the emerging world

The Omicron variant of COVID-19 is causing new virus cases to surge in the emerging world. Many EMs are reporting record daily cases or that new infections are rising sharply. South Africa’s experience offers some hope – cases are now falling sharply there and it looks like the economic fallout was limited. Elsewhere, most EM governments are following South Africa’s playbook by imposing limited (if any) containment measures, although China is a key exception. And given weakness in testing capacity and large informal sectors in most EMs, workplace absenteeism is unlikely to be as economically disruptive as in DMs.

14 January 2022

Omicron surging, asset sales progressing

COVID-19 cases in India are still surging. But the early indications are that healthcare systems are not under significant pressure, and we’re hopeful that India’s third wave will peak before long. Even if it doesn’t, the better-than-expected fiscal performance over recent months means that there is policy space for the government to intervene.  

14 January 2022

A look ahead to the key EM political events of 2022

In this Update, we take a look at the key political events that are scheduled across the emerging world over the coming year and outline their possible implications for economic policy and growth. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

13 January 2022
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A guide to political events in 2022

Korea, the Philippines and India are each holding elections this year that will play a role in setting fiscal and structural reform priorities, including the possible introduction of a universal basic income in Korea. And China looks set to tear up the leadership succession rules that have contributed to its unusual stability as an autocracy over recent decades. In view of the wider interest, we are also making this Emerging Asia Economics Update available to clients of our India and China services.

Cautious optimism despite oncoming Omicron wave

India is about to be hit by a huge Omicron wave. New COVID infections have surged fifteen-fold in the last two weeks. But we’re optimistic that the economy will prove more resilient than it has in the past. And South Africa’s experience with Omicron provides some reassurance that the outbreak could be brief.

Key calls for 2022

As long as recurrent large waves of COVID are avoided, we think that Indian GDP growth will accelerate this year. At the same time, inflation is likely to rise more sharply than generally expected. The result is that policy rates will be hiked by more than the consensus is forecasting.

PMI Surveys (Dec.)

India’s PMIs remained buoyant in December, suggesting that activity continued picking up towards the end of 2021. We think the recovery will gain momentum this year but a recent sharp jump in infections means that downside risks dominate in the near-term.

Inflation risks stacked on the upside in 2022

Upside inflation risks are building in India. Damage to crops from bad weather has caused spikes in vegetable prices recently. And base effects aren’t helpful: food inflation will accelerate in year-on-year terms over the next few months even if prices are flat. Meanwhile, there is no sign yet that the Omicron variant is spreading at speed. But if it does, and further containment measures are implemented in response, that would probably push inflation up too. Whereas lockdowns were initially disinflationary in other countries, India’s two lockdowns both caused measures of core CPI inflation to jump by around 1%-pt.

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