The Prospects for the Emerging Markets—Looking Beyond the Storm1

PGIM
By July 22, 2020 07:38

The Prospects for the Emerging Markets—Looking Beyond the Storm1

  • While the coronavirus has dealt a painful blow to many of the emerging-market economies, we see the challenges arising from this episode as only one of several sets of factors likely to determine EM vulnerability and performance over the medium term. The deeper drivers will continue to be the varying strength of these countries' underlying macroeconomic fundamentals and differences in the quality of their institutions.
  • With these issues in mind, our paper assesses the medium-term prospects and challenges for 25 major emerging markets. We consider each country's exposure to the virus (broadly defined), pre-existing macro vulnerabilities, and sensitivity to the generalized downturn in global conditions. We also consider the extent to which policy stimulus has helped to buffer these shocks.
  • Our work leaves us concerned about EM fiscal performance. The average country in our panel is poised to see a 5% of GDP deterioration in its budget this year. Further, a number of countries—notably including Brazil, Argentina, India, Hungary, and South Africa—entered the episode with already elevated debt levels. The hit from the virus and the contraction in the global economy are likely to exacerbate these challenges
PGIM
By July 22, 2020 07:38

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