The conflict in Ukraine, persistent inflationary pressures, tighter-than-expected financing conditions and China’s uncertain growth trajectory are raising concerns about the future economic performance of emerging countries. Today, the S&P rating agency released a report entitled “A road full of dangers” in which it highlights a worsening of risks in all the markets of this area which until recently appeared to be among the most promising globally . The agency has reduced its GDP growth forecasts for emerging markets bringing it to + 4% for 2022 and + 4.3% for 2024 (from 4.8% and 4.4% respectively). Beyond the shock on the Russian economy, most of the downward revision of these estimates concerns the EM EMEA area (India, Middle East, and Africa), while the impact on growth is more contained elsewhere.
An important role is played by the return of the rise in prices. Inflation increased in all emerging markets, especially in the EMEA area. Supply shocks due to rising raw materials and logistics costs are exacerbating ongoing inflationary pressures. S&P expects average EM consumer price inflation for 2022 to be 1.2 percentage points higher than forecast released in November. As a result, S&P has raised interest rate assumptions for 2022 and beyond.
The “Zero-Covid” policy weighs on China’s growth. Cases of Covid-19 have risen to all-time highs, forcing the government to implement closures, as in the case of Shanghai. This puts supply chains under further strain, as Shanghai is the largest port in China and the world. Currently, closures are limited to some regions, but the risk of further restrictions and consequent supply chain disruptions in other parts of the country persists.
Vulnerability to ongoing developments varies from country to country, and some are more resilient than others. For example, commodity exporters in Latin America, as well as South Africa, have experienced significant capital inflows since the conflict began. However, the drastic increase in global inflationary pressures, as well as slowing global growth, will weigh on all EMs this year, the ratings agency concludes.