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How will emerging-market economies perform this year?

Go East

As has been the case in recent decades, our Consensus is for Asian economies to record by far the fastest growth among emerging markets this year. Favorable demographics, relative institutional stability, high savings rates and openness to global trade can all help explain Asian exceptionalism. Among the region’s economies, Bangladesh, India and Vietnam are expected to be the top performers, while China should expand by around 5% thanks to the removal of Covid-19 restrictions.

Africa Rising

Sub-Saharan Africa (SSA) is likely to be the second-fastest-growing world region. And when excluding the sluggish economies of South Africa and Nigeria, growth would be over 4%, comparable to the rate in Asia. SSA’s fast-growing population, high demand for its commodities—many of which are essential to the green transition—and gradual improvements in governance all support the outlook. However, the reliance on the primary sector leaves the continent at the mercy of commodity price fluctuations and extreme weather events.

Real 2023 GDP growth for emerging markets
Real 2023 GDP growth for emerging markets

Middle of the Road

The Consensus among our panelists is for the Middle East and North Africa to record roughly 3% growth this year, a slowdown from last year as the region’s oil output stagnates and oil prices pull back. That said, economic reforms aimed at diversifying away from oil will support growth among energy exporters, with the UAE the undisputed leader on the reform front. Recent improvements in intra-regional relations also bode well, although Israel’s new right-wing government risks undoing part of the country’s rapprochement with Arab states.

Latin America Lagging

Latin America is forecast to grow by a paltry 1.0% this year, according to our panelists. The region’s central banks have been the world’s most aggressive over the last 18 months, with interest rates now well in double digits in many countries. In addition, investment will be hit by sociopolitical uncertainty—be it in the form of unrest in Peru following the arrest of former President Castillo, the lack of clarity over Chile’s new constitution, or investor concerns over fiscal policy in Brazil under Lula.

Battle Scars

Eastern Europe will be the worst-performing emerging market region, largely due to expected contractions in Russia and Belarus as Western sanctions tighten. Other Eastern European economies will suffer from damaged trade ties with Russia, high inflation and tighter monetary policy.

Insights from Our Analyst Network

On Africa, the African Development Bank said:
“The economic resilience of African countries in the short to medium term come with cautious optimism given the considerable global uncertainty. The risks of debt default could increase in some Afri­can countries—given the already high accumula­tion and changed structure of public debt in the past decade, the additional financial pressures created by the appreciating US dollar, and the tightening monetary conditions globally. The high dependence on exports of primary commodities with limited value addition could delay the struc­tural transformation presented by the green tran­sition. In addition, political risks could rise in 30 African countries.”

On China, Goldman Sachs analysts said:
“The rapid improvement in domestic mobility and solid January-February activity data suggest China’s post-reopening recovery appears stronger than our previous expectations, thanks mainly to the frontloading of reopening impulse and fiscal support. However, this also leaves less of a reopening boost for 2024 and slightly increases the risk of earlier policy normalization later this year than our previous baseline. As such, we upgrade our Q1 GDP growth forecast.”

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