Emerging Markets Are Kicking Into Higher Gear In 2017

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President Michel Temer survived the vote on 2 August in Congress and avoided the possibility of being tried for corruption. An interruption of the government‘s reform agenda was thus sidestepped for now, although political noise is still high. The government is trying to pass a critical pension reform by October and a tax overhaul by the end of the year, two badly needed measures to correct imbalances in the hobbled economy. However, Temer is not off the hook yet and is facing abysmal approval ratings along with the likelihood that the public prosecutor’s office will file more corruption-related cases against him in the coming months. Meanwhile, economic data has been mixed in recent months, suggesting that the recovery remains shaky. Industrial production growth stuttered in June and the manufacturing PMI fell in July, although a recent increase in commodities prices bodes well for exports.

Read more on the Brazilian economy.


After a stronger-than-expected first quarter GDP figure, the economy is expected to have grown for a second consecutive period in Q2, although at a weak pace. Industrial production picked up in May and the manufacturing PMI returned to expansionary territory in June for the first time since August 2016. In addition, the tourism industry—the economy’s lifejacket throughout the crisis—performed strongly in April. Moreover, the country received EUR 8.5 billion in funds from its creditors in July, avoiding a summer showdown over reform requirements and ensuring that the government will be able to fulfill short-term debt commitments. As the economic picture becomes slightly more stable, the country received another piece of good news in recent weeks. The European Commission recommended that the European Council should end the country’s excessive deficit procedure in July, removing special oversight over the government’s spending. The move highlights improving government finances, after the country recorded a fiscal surplus in 2016. Meanwhile, the country returned to international financial markets after a three-year absence on 25 July selling a five-year bond, an important step for the government towards gaining financial independence.

Read more on the Greek economy.


The economy’s recovery likely kicked into a higher gear in the second quarter and growth is seen coming in at the highest reading since Q4 2013. Data remained bright despite oil prices having fallen throughout the period. In May, exports soared by nearly 30% and unemployment edged down in June. Moreover, consumer confidence stood at the highest level in nearly three years in Q2, aided by the improving economic situation. While the economic picture is becoming brighter, recent events are casting a shadow on the country’s outlook. The U.S. Congress voted in July to step up sanctions on Russia, a move that could undermine confidence in the economy and investment and possibly put a lid on the pace of economic recovery in the long-term. In addition, the low-oil-price environment is weighing on the economy’s growth trajectory and shows little chance of improving, as a production cut deal by petroleum-exporting nations has failed to boost prices.

Read more on the Russian economy.

South Africa

President Jacob Zuma narrowly survived another no-confidence vote on 8 August despite having introduced secret voting in the legislative body for the first time ever. The victory, although important, is short-lived and shows how support for Zuma’s battered image continues to erode due to multiple scandals involving graft and mismanagement. The ultimate test for the embattled president, however, is the December ANC convention where the party will choose a new leader for the 2019 presidential elections. Furthermore, Zuma’s persistent political debacles are causing collateral damage in the economy. South Africa entered a technical recession in Q1 and an uncertain political landscape is keeping investment at bay. Muted investor appetite bodes badly for the economy since it is crucial to rekindle growth as the latest stream of data has been bleak. The unemployment rate was 27.2% in Q2, manufacturing output was stagnant in June and survey-based data was disappointing at the outset of Q3.

Read more on the South African economy.


GDP growth accelerated markedly in Q1 on the back of a hearty recovery in the agricultural sector, coming in at a five-quarter high of 3.8%. Improved household spending and investment in Q1 were the result of healthier dynamics in the domestic economy and came despite the uptick in unemployment. Moreover, leading indicators suggest that the economy kept up the pace in Q2. Notably, trade data from the January-May period suggests that the external sector’s negative contribution to growth narrowed as higher imported energy costs were outstripped by robust growth in phosphate exports, which explains the jump in mining output in May. In early July, the IMF noted definite progress on the country’s ongoing fiscal and structural reforms.

Read more on the Moroccan economy.


Taiwan’s economy lost some steam in Q2 according to recently-released figures, although it still expanded at a moderate pace thanks to a strong external sector and robust private consumption growth. The economy has seemingly kicked off the third quarter on a solid footing, with exports motoring ahead in July thanks to healthy demand abroad, particularly from mainland China. The uptick in the global economy also benefited July’s PMI reading, with firms reporting increased sales overseas. The economy should also benefit from the government’s forward-looking infrastructure development program. The USD 3.3 billion budget for the first stage of the plan passed its first reading in Parliament in mid-July, and there are hopes that the budget can clear the house entirely before September in order to allow work to commence on shovel-ready projects.

Read more on the Taiwanese economy.


The economy looks to have staggered back to its feet after receiving a body blow in Q1 due to a fall in mining activity. The economic activity indicator (IMACEC) expanded for the fourth consecutive month in June thanks to greater services and trade activity. In addition, consumer confidence reached its highest level in over two years in July; this bodes well for private consumption, which has been key to supporting growth in the face of lower fixed investment. However, firms remain cagey with presidential elections just around the corner, as business confidence dipped again last month. On the political scene, Beatriz Sanchez from the leftist Frente Amplio coalition has recently emerged as a contender to reach the second round. Although her manifesto is not yet finalized, measures previously touted include universal health insurance, higher taxes on mining firms and an end to the AFP (private pension providers).

Read more on the Chilean economy.


Leading indicators suggest that the economy accelerated only marginally in Q2, a disappointing possibility following tepid growth in Q1. In May, industrial production contracted for a second consecutive month as the textile industry suffered from competition from cheaper products coming from Asia. However, other indicators paint a more optimistic picture: consumer confidence edged up and unemployment fell in June, both of which bode well for a much-needed boost to household spending. On the external side, exports recorded an almost flat reading in June after a stellar expansion in May, hinting that the prolonged slump in commodity prices could weigh on exports growth into Q3. Finally, H2 was ushered in by good news: coffee production soared by 25% year-on-year in July as harvests impressed to the upside.

Read more on the Colombian economy.


2017 is shaping up to be a spectacular year for the Hungarian economy as it is being supported by ambitious pro-cyclical policies and a resumption of EU investment funding. All evidence suggests that growth in Q2 remained robust. In May, both industrial production and retail sales expanded solidly and unemployment declined again. The external sector also performed robustly in the same month, hinting that the economic upturn is broad-based. Adding to the mounting good news, survey-based data reached all-time highs at the start of the third quarter, underscoring the strength of the country’s economic fundamentals.

Read more on the Hungarian economy.


The political clash with several Arab states led by Saudi Arabia, which has resulted in the economic blockade of Qatar, has left some visible scars on the economy. In June, foreign deposits at Qatar’s banks dropped significantly, prompting the Qatar Investment Authority, the country’s sovereign wealth fund, to step in and inject billions of dollars into local banks in order to avoid a liquidity crunch. Moreover, Qatar’s decision to amend its anti-terrorism laws was deemed insufficient by the Saudi-led alliance, and the mediation attempt by U.S. Secretary of State Rex Tillerson has thus far proved fruitless. The crisis hits the country at a moment of relative economic weakness, with oil production at a multi-year low and GDP growing unimpressively in Q1, pushing credit rating agency Moody’s to change Qatar’s rating outlook to negative on 4 July.

Read more on the Qatari economy.


The economy expanded at a markedly slower pace in Q2, although positive momentum was largely retained and growth prospects remain relatively upbeat. While private consumption has shown signs of cooling off heading into Q3—auto sales were down in both June and July—upbeat manufacturing output and sentiment, a strong labor market and soaring remittance inflows continue to support economic activity. Along with positive economic momentum, the government’s successful efforts to control the fiscal deficit and debt levels led both S&P Global Ratings and Fitch Ratings to upgrade the outlook of Mexico’s sovereign credit rating to stable while maintaining the country’s BBB+ grade. These upgrades come only weeks before talks to renegotiate NAFTA officially start on 16 August. Mexico recently disclosed its goals for a new agreement, prioritizing free access for goods and services and greater labor market integration.

Read more on the Mexican economy.

Czech Republic

The Czech economy is growing robustly, buoyed by a favorable external environment and strong household spending. After falling somewhat in April, exports jumped in May, with a greater trade surplus recorded for motor vehicles on the back of stronger demand from European Union countries. The jump in exports was behind the rebound in industrial production recorded in the same month and PMI readings suggest that both domestic and external demand are creating expansionary conditions in the manufacturing sector. The positive momentum is also being felt in the labor market, with unemployment falling to a fresh multi-year low in June, which, together with rising wages, is underpinning private consumption. In addition, recently-published data shows that public finances are benefiting from robust growth, as in Q1, the fiscal balance recorded a small surplus—reverting the deficit registered in Q1 2016—thanks to revenue growth, especially from income taxes, outpacing spending growth.

Read more on the Czech economy.


Heightened uncertainty and market volatility abound in the wake of 24 July’s two presidential vetoes that halted much of the PiS-led judicial overhauls that had prompted nationwide protests. In the days since, the EU has filed court proceedings against the country in what promises to be a drawn-out legal squabble over the direction of Polish democracy. Although investor confidence is likely to be tested in the near term, a strong economy and sound fundamentals are sure to cushion much of the blow—that is, a tightening labor market and healthy retail sales through June bode well for resilient consumer spending at the end of H1. Moreover, survey-based data showed a pronounced optimism heading into H2: the manufacturing PMI recovered solidly in June on improved output growth and business confidence was once again upbeat in July.

Read more on the Polish economy.


The country is in the eye of the storm amid escalating geopolitical tensions in the Korean Peninsula. Preliminary data show that a contraction in exports caused GDP growth to decelerate in the second quarter. The decline in exports largely reflects China’s ban on group tours following the deployment of a controversial anti-missile system in the country earlier this year. Despite the slowdown, the government is fairly optimistic about the country’s growth outlook and raised its 2017 forecast to 3.0% in late July, the highest in three years. The revision reflects the view that the approval of an almost USD 10 billion supplementary budget will give the economy the extra boost although it is uncertain how the government could actually implement concrete measures without a parliamentary majority. The upward revision came despite an escalating war of words between the United States and its rival in the North which could dampen fixed investment and private consumption in the short-term.

Read more on the Korean economy.


The economy has surged so far this year thanks to an expansionary fiscal policy and healthy export growth fueled by the weaker lira. In April, the unemployment rate dropped to a ten-month low, continuing the positive trend observed since the start of the year and highlighting the positive impact of the government’s employment campaign. In addition, conditions in the manufacturing sector are upbeat, with the capacity utilization rate remaining elevated in July and the PMI staying firmly in expansionary territory in the last few months. In a bid to rejuvenate the political scene in the same way, the Prime Minister reshuffled his cabinet in July. Most key positions are unchanged, and the reappointment of Mehmet Simsek as the sole economy minister is likely to calm investors’ nerves; he is widely regarded as a safe pair of hands and a fiscal moderate, in contrast to other big spenders in the cabinet.

Read more on the Turkish economy.

United Arab Emirates

The non-oil sector continues to hum along, with the PMI remaining well within expansionary territory so far this year thanks to solid domestic demand and strong growth in output and new orders, although employment growth has been anemic due to pressure on margins. In contrast, the oil sector is looking peaky; even though the UAE complied with oil production cuts in May and June, and despite the OPEC deal extension until November, prices remain fairly depressed. However, the country is still navigating the choppy economic waters of low oil prices better than GCC neighbors, thanks to a rock-solid fiscal position and a relatively diversified economy. In order to boost revenues and broaden the tax base, from 2018 VAT will be implemented for the first time at 5.0%. The specificities of the policy are gradually crystalizing, with the government recently announcing exemptions for residential real estate, some financial services and local transport.

Read more on the Emerati economy.


The Thai economy defied expectations and picked up steam in the second quarter, growing at the fastest pace in over four years, chiefly driven by a buoyant external sector. Exports grew at a double-digit rate nearly throughout Q2 on the back of healthy global demand, with firms brushing off fears about a strong baht harming competitiveness. Imports also grew strongly over the same period, signaling a fairly robust domestic market, with consumer spending likely boosted by lower inflation. However, the third quarter seems to have gotten off to a slightly less auspicious start. The PMI dipped below the crucial 50-point mark in July due to falls in output and employment, indicating a deterioration in business conditions, while business confidence also declined marginally in the same month.

Read more on the Thai economy.


Emerging data for Q2 suggests an upturn in growth dynamics for the economy, which since the start of the year has been severely disrupted by domestic political turmoil—spearheaded by the Odebrecht corruption scandal—and devastating floods triggered by the “coastal El Niño” phenomenon in the north-western part of the country. Economic activity surged in May after dwindling at subdued levels, led by a robust expansion in the manufacturing sector. Exports growth strengthened in June, widening the trade surplus. Furthermore, the business confidence indicator ticked up in July as efforts to improve political conditions were stepped up by the government. President Pedro Pablo Kuczynski focused his 28 July Independence Day speech on his government’s plans to get the economy back into shape, affirming his commitment to speed up delayed investment in infrastructure projects through the introduction of a bill. He pledged to resume large projects, such as the Southern Gas Pipeline and the Lima Airport expansion—the projects were put on hold due to corruption or inadequate financing arrangements—in a bid to restore confidence in his political mandate amid rapidly-declining approval ratings.

Read more on the Peruvian economy.


The economy surprised on the upside in Q2, accelerating thanks to a notable expansion in private consumption. A healthy manufacturing sector and solid momentum in services supported growth in the quarter, along with a positive push from the external sector. On the political front, while the recent positive economic momentum had led analysts to speculate that elections could be brought forward, the July-August session of Parliament came to an end without having taken any steps toward calling a vote. A delay in approving new electoral boundaries for the state of Sabah are likely impeding the government’s ability to call early elections, as typically the state’s vote is held at the same time as the national vote for cost reasons. The country is scheduled to hold a general election by August 2018 at the latest.

Read more on the Malaysian economy.


The government’s bold economic strategy was vindicated in mid-July, with the IMF formally signing off on the second tranche of bailout funding worth USD 1.25 billion. In its first review of the Extended Fund Facility (EFF), the Fund gave a fairly ringing endorsement, lauding the progress on the reform agenda, with new investment and industrial licensing laws recently approved and a new insolvency law currently in Parliament. Nevertheless, consumers could be forgiven for not sharing the IMF’s enthusiasm, as recent hefty fuel and electricity subsidy cuts have the potential to further stoke already-high price pressures in the coming months. They can however take some solace from plans to phase out energy subsidies more gradually than previously expected and a social package announced by the government in June. In the face of higher inflation, the Central Bank is taking no chances, pulling up the monetary drawbridge further at its most recent meeting despite the fragile economy.

Read more on the Egyptian economy.


Economic activity was disappointing in the second quarter, as growth stalled at Q1’s 5.0% year-on-year, contrasting expectations of an acceleration. Plummeting government consumption limited the economy’s momentum, while the external sector’s performance was lackluster. However, investment was a bright spot in the data and gained speed. Early data for the third quarter suggests subdued activity: the manufacturing PMI pointed to a sharper contraction in July and the trade balance recorded the first deficit since December 2015. On 16 August, President Joko Widodo presented a draft budget for 2018 to Parliament. The budget aims to increase spending to USD 165 billion to jumpstart growth and projects the fiscal deficit to narrow to 2.19% of GDP on the back of higher revenues.

Read more on the Indonesian economy.


Incoming data for July suggests that momentum is moderating in H2 following the stellar performance in H1 driven by strong property sales and export activity. July’s slowdown reflects weather-related disruptions, supply adjustments in some sectors and lower property sales. On a positive note, a brighter economic outlook, a weaker U.S. dollar and the People’s Bank of China’s (PBOC) controls led capital outflows to ease and international reserve to stop falling. Authorities’ success in curtailing capital flight prompted the yuan to strengthen in recent months. With the economy sailing smoothly and risks to growth broadly balanced, the government tightened fiscal expenditure in July after H1’s strong growth in spending. Moreover, a report from the PBOC released on 11 August showed that effective lending rates are gradually increasing as a result of tighter financial conditions related to the Bank’s effort to promote financial deleveraging.

Read more on the Chinese economy.


Economic activity remains buoyant, underpinned by solid macroeconomic fundamentals and an accommodative monetary policy. The health of the economy was reflected in the national accounts for Q2, which showed that GDP had extended its streak of solid expansions on the back of further remarkable performance in domestic demand. Robust inflows of remittances and healthy credit expansion have contributed to supporting household spending, while the ramping-up of infrastructure spending by the government, ample liquidity and favorable financing conditions have translated into upbeat business sentiment and rising fixed investment. Against this backdrop, the annual drop in FDI in the first five months of the year following the Fed’s tightening cycle is not too alarming, especially considering that the country’s ample foreign reserves provide protection from potential external shocks.

Read more on the Philippine economy.


Incoming data points to a disruption in economic activity following the 1 July implementation of the new GST. Both the manufacturing and services PMIs fell into contractionary territory in July, while no relief came from abroad as exports growth slowed in the same month. Confusion over the new tax procedures and how to price products are chiefly behind the slowdown, but the blip in momentum is expected to be short-lived overall. Meanwhile, the government presented its Economic Survey to Parliament in August. Chief Economic Advisor Arvind Subramanian warned that fiscal slippages could interfere with the economy’s momentum and voiced concerns over farm loan waivers by states, while at the same time reiterating the government’s commitment to hitting budget targets.

Read more on the Indian economy.

Emerging markets have a long way to go, but they are overall looking much better this year than the last few. If you’d like more economic information and data on the Emerging Markets, we have a free Emerging Markets report download that you can access here. Or you can click on the button below to download one of our standard Consensus Forecast reports for free.

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