EMs to outperform AEs as world economy enters downturn

While our outlook for emerging markets (EMs) is more upbeat than for advanced economies (AEs), we have cut our 2023 GDP growth forecast for EM ex-China by 0.3ppts to 2% due to rising global headwinds. Despite weaker growth, we’ve raised our inflation forecast 0.4ppts to 9.1%.

What you will learn:

• Our revisions are underpinned by weakening demand as the global economy enters recession, a stronger-for-longer dollar pressures balance sheets, and China’s lack of growth engines prevents it from being the demand of last resort as in previous downturns. Though our 2023 forecasts are more pessimistic than last month, we still expect more dynamism in EMs than in AEs.
• Although we are well below consensus, our economists still see risks as slumping external demand, prolonged inflation, and domestic politics weigh on growth. Sixty percent anticipate downside risks to GDP and upside risks to CPI (meaning a higher inflation rate).
• As the outlook deteriorates, we think EM central banks will pause before starting to reverse the tightening next year. Policy rate risks are seen as more balanced: half of our economists do not anticipate revisions.