The IIF covers 30-40 emerging and frontier markets, with a particular focus on economic and financing issues. Our reports feature topical analysis of macroeconomic fundamentals, policy developments, political economy dynamics and downside risks.
Activity recovered faster than expected in 2020H2, driven mainly by manufacturing. EU funds should support public investment ahead of next year’s parliamentary elections. The MNB’s monetary policy stance is expected to remain largely accommodative in 2021. But we think service sector reopening poses a greater inflation risk than markets predict. Rising inflation expectations and weaker HUF could bring forward the tightening to 2021.
The kingdom has seen a limited impact of the pandemic due to its low share of services and young population. Non-oil real GDP will grow by 3% in 2021 following a contraction of 2.7% in 2020. The fiscal deficit will narrow to 4% of GDP in 2021, supported by fiscal consolidation and higher oil prices.
Improved market sentiment will allow African sovereigns to return to the market in ‘21. We expect Egypt, Nigeria, Ghana, and South Africa, among others, to issue Eurobonds. However, debt sustainability and liquidity concerns are rising in the context of COVID-19. African countries face Eurobond repayments of close to $100 bn in the coming years. An end to the current low-interest rate environment could make rolling over of debt costly.
The Egyptian economy has weathered the COVID-19 pandemic relatively well. Monetary policy was appropriately eased and has some scope for additional support to underpin the recovery. Reining in fiscal deficits and debt will require a commitment to fiscal discipline once the COVID-19 crisis abates.
We expect Frontier Asia to remain broadly resilient to the COVID-19 shock. Loose monetary and fiscal policies will extend into ‘21 and support growth. However, tourism will continue to weigh on growth and current accounts. Trade tensions and growing debt are the key risks to their economic outlook.
The UAE has seen limited health impacts from the pandemic. The vaccine rollout, partial oil price recovery, and progress in digital transformation offer hope for the UAE economy. Technological progress will develop new growth drivers and raise potential growth over the medium-term.
Russia is experiencing the largest protests in years in response to the jailing of Alexei Navalny. Many Russians are frustrated by stagnating incomes, a weak social safety net, and corruption. Years of fiscal consolidation to address sanctions have exacerbated socioeconomic challenges. However, we do not expect protests to change macroeconomic conditions in a fundamental way.
China’s exports were remarkably resilient in 2020, thanks to strong demand for PPE and WFH products. Export’s contribution to China’s economic growth in 2020 was greater than the headline number indicated. China’s exports are likely to be more balanced in 2021 as vaccination reopens global economy.
CEEMEA countries recovered faster from the initial COVID-19 shock than expected. This is mainly due to virus containment allowing for a faster reopening of businesses. As a result, we are revising our estimate of the contraction in 2020 from 5.2% to 3.2%. However, a second wave of infections weighed on economic activity in recent months. We expect modest growth of 3.8% in 2021, but much depends on vaccinations efforts.