Central banks beginning to shift focus

The growth outlook for the emerging world has taken a turn for the worse. The latest activity data for China suggest that the post-lockdown recovery has lost steam. The PBOC has responded by lowering interest rates and we expect further easing, but we doubt this support will be enough to prevent more economic weakness. Meanwhile, a combination of softening external demand, elevated inflation and high interest rates is weighing on activity across large parts of Emerging Europe and Latin America, causing some central banks including the Czech Republic (and possibly Poland and Brazil too) to bring their tightening cycles to an end. But with inflation unlikely to drop back to central bank targets any time soon, policy rates will remain high throughout the next 12-18 months.