Emerging Markets 2016: Growth Divergence Continues

 Argentina ar-01.png

Mauro Roca, Senior Economist, Goldman Sachs

“Now that the cornerstone of the economic policy strategy has been established (liberation of the exchange market and the reestablishment of access to capital markets), Argentina’s economic outlook is unequivocally positive, much more promising than it has been in many years. Nevertheless, there still is some uncertainty regarding the future policy strategy to correct some of the lingering macroeconomic imbalances. In particular, there is no clarity regarding the measures that could be potentially adopted to achieve the announced fiscal targets that would ultimately result in the elimination of the primary fiscal deficit by 2019. For the time being, the fiscal strategy seems to be subject to the country increasing revenues on a path of high and sustainable economic growth. Nonetheless, it is still difficult to identify the key drivers of growth that would pull the economy out of its prolonged stagflation, especially when it is still affected by serious productivity issues. Therefore, hope is being placed in foreign investment. Ultimately, both economic growth and the reduction of macroeconomic imbalances will be much subject to the availability of external financing. The good news is that, attracted by high yields and development potential, international markets, so far, appear willing to facilitate (finance) this economic transition.”

brazil_flag_circle-512.png Brazil

Bruno C. Rovai, Brazil Economist, Barclays

“After a rough 2015, the Brazilian economy is facing another year full of challenges and the outlook remains bleak. The focus for the moment will be the political front where a change in the government seems more likely than ever as the impeachment process against Dilma Rousseff is advancing. But nothing assures us that things would be much different with a government headed by VP Temer for two reasons: the Congress will remain fairly fragmented and Operation Car Wash will bring instability to the incoming government as well. This mix of conditions will not lead to the approval of needed structural reforms. Moreover, the strong fiscal imbalance may persist, thus shooting gross public debt close to 80% of GDP.”

Gustavo Rangel, Chief Economist LATAM, ING

“Brazil’s economic crisis is deepening, with economic activity still contracting at an annual pace of more than 5% at the margin and uncertain prospects regarding whether a fiscal consolidation effort will be successful. President Rousseff’s fragile political command suggests meanwhile that prospects for a recovery increasingly depend upon an eventual change in government. Resolving fiscal imbalances remains the most critical challenge on the economic policy front, and this must be addressed with the passage of a robust fiscal reform by Congress. This is essential for Brazil to start the healing process. Risk of stress in the local financial system is rising, as NPLs have weakened local banks’ balance sheets. On the positive side, lower inflation should help pave the way for rate cuts when the fiscal consolidation effort gains traction, while external accounts continue to show impressive resilience with a surge in the trade surplus and robust FDI inflows.”

flag_of_the_peoples_republic_of_china_-_circle-512.png China

Tao Wang, Chief China economist, UBS

“Given stronger-than-expected fiscal and quasi-fiscal support which has started to come through, and improvement in property activity, we upgrade our 2016 GDP growth forecast from 6.2% to 6.6%. Our higher GDP growth forecast comes mainly from stronger fixed investment (with gross fixed capital formation staying around 6% in 2016 rather than decelerating visibly as previously envisaged). Consumption is also revised up as a less pronounced economic slowdown and slower-than-expected progress in excess capacity closures mean less-than-expected downward pressure on employment and wage growth. Although exports will likely stay weak, mathematically net exports should still contribute positively to GDP growth. There are both downside and upside risks to our forecast. On the upside, property construction may rebound more as positive sentiment leads to better sales and more construction, helped by cheaper and more easily available credit. The government could also push for even more quasi-fiscal stimulus through special construction bonds and bank lending. Export demand may be stronger than expected as well. On the downside, global growth may disappoint again, industrial sector investment may drop more significantly and the property rebound may end faster than we now envisage.”

41twsgmp1sl-_sy300_.jpg India

Kunal Kundu, India Economist, Société Générale

“We expect a lower growth during FY17 (7.3% yoy) as compared to FY16 (7.5% yoy). We are worried about the health of the banking sector (high levels of NPAs and restructured loans) and rising corporate and rural household indebtedness. Focus on fiscal consolidation can also act as a constraint, unless the government is forced to relax its commitment. The financial repression that the government embarked upon last financial year (gobbling up the energy dividend rather than passing it onto the consumers, given the tight fiscal situation) may not save the government this year. This would prevent the government from pump priming the economy. In fact, the government has budgeted for a capex increase of a mere 3.9% during FY17. Weak global growth condition would further act as an impediment as India’s export would likely remain weak. On the other hand, any investment driven growth will mean rising current account deficit and hence weakening net trade balance will likely impact growth negatively.”

256-256-ae3644852016062df814998796ff33ee_0.png Mexico

Gabriel Lozano, Chief Mexico Economist, J.P. Morgan

“We project the economy to expand 2.4% this year on the back of tighter monetary and fiscal policies. The measures should keep the output gap in negative territory for a longer span of time, limiting demand-side pressures on inflation. By cutting both current and capital spending, the effect on construction and oil production will not be negligible. […] Structural reforms have generated optimism around Mexico’s growth prospects. While we share such optimism, we believe the full impact of the reforms will not be fully felt but in the medium term. Some short-term positive externalities are related to lower prices in energy and the telecomm sector. We believe Mexico’s potential GDP growth could shift up significantly, although given the recent oil shock, we believe the effect will be more gradual than originally expected.”

poland-256.png Poland

Peter Attard Montalto, Senior Emerging Markets Economist, Nomura

“2016 is set to be a key transition risk year before PiS pro-growth policies kick in and things balance out on the fiscal front into 2017. The NBP focus is unlikely to be on rates. The constitutional crisis, FX mortgage conversion and reversing course on some structural reforms (such as pensions and state-owned enterprises) remain the major headwinds in Poland. In the medium term, however, we think these negative events will give way to long-run optimism about high growth (ignoring possible current growth being lower than potential growth). That said, 2016 remains a risk year, when the deficit could blow out (firm expenditure commitments and uncertain measures for boosting revenue), growth takes time to turn higher, banking sector reforms are delayed and further downgrades seem possible. Long-run growth and contained fiscal risks should be positive for Polish assets in the medium term.”

flag_of_russia_-_circle-512.png Russia

Liza Ermolenko, Emerging Markets Economist, Capital Economics

“The acute phase of Russia’s crisis appears to have passed, and output should start to grow in quarter-on-quarter terms in the second half of the year. Nonetheless, the recovery will be weak. We expect oil prices to stay low, ending the year at $45pb. Meanwhile, despite the recent fall in inflation it will remain high, weighing on households’ real incomes. In addition, investment will be slow to turn around. All told, we expect the economy to contract by 1.3% this year.”

screen-shot-2014-09-08-at-12.10.35-pm.png South Africa

Annabel Bishop, Chief South Africa Economist, Investec

“The slump in the commodity cycle has intensified, along with the weak performance of key trading partners (notably China), while domestically the most severe drought in twenty five years is occurring, causing South Africa to face another difficult year of low economic growth.  Weak economic conditions are likely to persist in South Africa in 2016, with a further moderation in household consumption expenditure growth likely as consumer confidence is depressed, employment growth in the private sector low and interest rates and taxes increase. Insufficient financial support for the agriculture sector (which is hamstrung by the drought) will threaten future food security, has already lifted inflation, will negatively impact the current account and, under the new monetary policy paradigm, result in higher interest rates.”


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