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.
We believe multilateral support will be critical for South Africa going forward. Moody’s rating downgrade will likely trigger further capital outflows in 2020Q2. This will continue the pressure on the ZAR, which we have flagged as overvalued. Economic contraction and higher funding costs will likely make debt unsustainable.
China’s NPL ratio has been remarkably stable amid slowing economic growth, largely because many NPLs have been written off. Without these write-offs, China’s NPL ratio would be at 4.85% today instead of the actual 1.86%. More institutions and instruments have been introduced to clean up NPLs.
Our MENA growth forecast stands at -0.3% with additional downside risks and high uncertainty over the duration of the shutdown and an additional potential fall on oil prices. We project recession in most oil exporters, the lowest growth in oil importers since the early 1990s, and wide twin deficits.
We now expect a recession in CEEMEA as a result of COVID-19. CEE will be affected by Euro area contraction but has policy space. ussia’s buffers and flexible Ruble should reduce impact on growth. Lower growth will markedly worsen debt dynamics in South Africa. Recession concerns could trigger further policy easing in Turkey.
We see the global economy in recession this year, as low oil and financial stress add to the Covid shock. The shock hits EM after years of already subpar growth. We project recessions everywhere in Latin America, and the lowest EM Asia growth since the 1997-98 crisis.
Russia is more insulated from external shocks than other EMs but not immune. We expect the economy to contract in ‘20, down from our previous forecast of 2%. Its flexible exchange rate puts Russia at a distinct advantage compared to 2014. Most importantly, authorities have ample policy space to address challenges.
Hong Kong’s economy took a hit last year due to social unrest and trade tensions. Falling consumption, investment and foreign trade dragged its economy into recession. However, Hong Kong’s financial industry has proven resilient. The COVID-19 shock raises growth and other risks going forward.
Authorities aim at boosting capital spending through the credit channel. Turkey’s external vulnerabilities have been somewhat reduced in 2019. Credit growth buffered the economy from weaker growth last year. Global recession risks pose significant challenges for growth in 2020.
We have lowered our average Brent oil price assumption by $10/bbl to $54/bbl for 2020 due to lower global demand for oil. Such a decline exposes significant vulnerabilities among MENA oil-exporting countries, especially Oman and Bahrain. External and fiscal positions are expected to weaken.