S&P Global Ratings, a credit rating agency that provides financial research, have published a report titled Emerging Markets: A Tenuous And Varied Recovery Path, discussing how emerging market economies are recovering from a decline in activity as governments ease social distancing measures and global demand picks up.
The key findings from this report are:
- Emerging market (EM) economies are recovering from a deep decline in activity due to the Covid-19 pandemic and various global restrictions. S&P forecast average GDP in EMs, excluding China, to decline 6.4% in 2020 and grow 6.2% in 2021. It should be noted that this masks significant divergences between economies.
- The recovery is advancing at different speeds across EMs, shaped by pandemic related developments such as the different governments easing of social distancing restrictions. Other factors are also involved, such as the pace of the rebound in major trading partners and the effectiveness of policy support in different countries.
- S&P have revised their 2020 GDP growth forecast upwards for the first time this year in Brazil, China, Russia, Poland, and Turkey, and downwardly revised for most other EMs including Mexico and South Africa. The largest negative contribution comes from India, who’s GDP forecast was sharply lowered to a contraction of 9% from 5%.
- Risks to the outlook for EMs are still skewed to the downside and mostly relate to pandemic and policy developments. Geopolitical risks have risen particularly in EMEA (Europe, Middle East and Africa). Earlier-than-expected deployment of a vaccine is a modest upside risk to our projections.
The report also found that the renewed growth in Covid-19 cases could disrupt the recovery of EM’s due to countries resuming lockdowns to avoid a second wave of cases as well as the spike in risk aversion by consumers and businesses. This has the potential to trigger significantly lower global demand, trade and commodity prices slowing the recovery of emerging markets.