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.
Growth in the Euro area slowed considerably in 2018 and 2019H1. CEE countries are highly integrated into European value chains. We already see evidence of a slowdown in industrial production. However, domestic demand continues to support robust growth. In case of further shocks, policy space is not universally available.
Activity in China slowed markedly in the first half of 2018, but softened just marginally when trade tensions picked up. Policy support to credit-intensive sectors largely offset tariffs, but investment in high value-added tradable sectors suffered. Scope for more policy support remains if growth falls further.
Nationwide protests continue, triggered by economic strain and deep-rooted dissatisfaction with the sectarian-based leaders. Permanent fiscal measures and deeper structural reforms are needed to achieve macroeconomic stability and raise growth.
Investors finished the IMF/WB meetings on a less negative note. Concerns remain, but fewer worried about the risk of a recession. Monetary easing and a US-China trade deal would be supportive. Barring surprises from the Dollar, modest flows to EM are likely. The IMF's integrated policy framework remains a key topic for EM.
We expect growth in the MENA region to slow to 1.4% in 2019 from 1.8% in 2018, dragged down by the deep recession in Iran and the compliance with the OPEC + deal. This aggregate picture, however, hides considerable heterogeneity in economic paths across the region.
Pension reform has improved Brazil’s growth prospects amid an anemic recovery.
Investor interest in government bonds has picked up in recent months in the hope of a change in government and implementation of reforms. Macroeconomic imbalances, however, have risen to concerning levels, and a renewed EU Excessive Deficit Procedure is clearly on the horizon.
South Africa’s debt could reach as high as 95% of GDP in a pessimistic scenario. Low growth, high interest payments, and a decade of mismanagement are at fault. SOEs are a drain on public finances, and Eskom alone could add 6pp to debt. Mitigating factors are SARB independence, limited FX debt, and long maturities. Moody’s may put SA on negative watch but keep the IG rating for a little longer.