Nov 23, 2021
Portfolio Managers Grant Webster and Archie Hart assess the outlook for emerging markets in 2022.
As we headed towards the end of 2020, emerging market (EM) economies were braced for a difficult period ahead. Economists expected EMs to run significant output gaps as they bore the brunt of the COVID-19 devastation, which wrought havoc across supply chains and left many countries running at well below capacity. The anticipated recovery was expected to take years, with fiscal spending constrained by elevated deficits and the uneven roll out of vaccine programmes disproportionately impacting developing countries, making them vulnerable to further waves of the virus.
However, for all this doom and gloom, a healthier reality emerged as EM economies fared much better than expected. As Figure 1 illustrates, revisions to growth forecasts revealed that the pandemic was less damaging to EM economies in 2020 than previously thought, while growth in 2021 has been stronger than expected. Strong demand from developed markets (DMs) for both goods and commodities has meant that EMs have experienced a robust terms-of-trade improvement, leading to healthier current accounts, while fiscal revenues have also been stronger than expected, which has given governments (and markets) much-needed breathing room. Meanwhile, the allocation of special drawing rights from the IMF has substantially alleviated the funding requirements for many smaller, frontier markets.
Figure 1: EMs have emerged in a far healthier condition than was initially feared
Source: IMF World Economic Outlook (October 2020 and October 2021), Ninety One calculations.
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