While emerging economies (EMEs), apart from China, have contributed little to global warming, the future CO2 emissions curve and the resulting additional temperature rise will largely hinge on their ability to conciliate growth and decarbonisation. However, due to limited financial resources, their investments in the "green" transition are low, at around 50 dollars a year per capita, compared to investments which are around seventeen times higher (850 dollars a year per capita) in developed countries. This disparity gave rise to the idea of securing transfers from developed to developing countries at the Copenhagen Conference of the Parties (COP), in 2009.
The election of Donald Trump has not triggered any major financial tensions in the main emerging markets. Nevertheless, the dollar has strengthened, which should delay the easing of monetary policies. More worryingly, emerging economies will be the direct or collateral victims of the trade war promised by the incoming United States administration. They will face a double shock: a sharp slowdown in global trade and the re-routing of Chinese exports. The first shock is bound to be recessionary or even inflationary. The impact of the second is not clear cut as it hinges on the types of Chinese exports (complementary or competing) and, most of all, on their link with direct investment.
The election of Donald Trump as President of the United States has raised fears that protectionist measures will be stepped up. Customs duties would be applied to all products from all of the United States' trading partners. In addition to China, the main country targeted, concerns about the macroeconomic and financial consequences of such a policy have risen sharply in Mexico.
The macroeconomic outlook for South Africa is gloomy. After a year of unprecedented electricity shortages in 2023, economic growth is only expected to rebound very slightly in 2024. However, investor confidence has been boosted with new political forces entering into government in June 2024, following the general election in May. The new coalition government, with populist parties largely absent, offers the prospect of a degree of political continuity, continued fiscal consolidation and the implementation of reforms designed to increase the medium-term economic-growth potential. However, this government of national unity is built on uneasy alliances
Bank Indonesia unexpectedly cut its monetary policy rates on 18 September (-25 bps). This easing was largely due to the rupiah strengthening against the USD since August (+6.4%).
In the second quarter of 2024, Turkish growth fell below 3% year-on-year for the first time since 2019. On a quarterly basis, GDP even remained stable. Without the positive contribution of foreign trade and inventories, GDP would even have fallen.
Growth in emerging markets held up fairly well until the spring of 2024, partly thanks to the easing of monetary policies since mid-2023. The imminent one in the United States should make it possible to extend or even strengthen it. In the most likely scenario of a soft landing of the US economy, the main risk for emerging economies is a sharper-than-expected slowdown in the Chinese economy. The slump in the real estate sector is spreading through the fall in commodity prices. On the one hand, most emerging countries will gain in disinflation. But, on the other hand, commodity-exporting countries of which China is the main customer will suffer. Above all, the risk of contagion lies in the implications of the Chinese authorities' strategy of supporting growth through foreign trade
In Central Europe, 5-year government bond yields have broadly toned down since the last peak observed in 2022, amidst acute geopolitical uncertainties.
Poland’s economy has generally shown resilience during periods of turbulence since the financial crisis of 2008-2009. For instance, in 2009, the country was able to avoid a recession in contrast to neighbouring countries. Since 2020, successive shocks have constrained GDP growth momentum, but strong fiscal buffers enabled the authorities to implement generous supportive measures. The country remains amongst the best performing economies in the region in the early months of 2024, with its GDP above 11% in Q12024 compared to its pre-COVID levels. Overall, the country reinforced its position in Europe, judging from the increase of Poland’s economic weight in the EU (measured by GDP in purchasing power parity) and gains in market share
Since the start of the year, growth in emerging countries has held up quite well. This is reflected not only in business and household confidence, but also in the confidence of foreign investors in the local bond and stock markets. The tightening of US monetary policy from early 2022 to mid-2023 did have a major negative impact on portfolio investment flows. However, this impact was largely offset by the attractiveness of emerging markets for both private and institutional investors, whether for purely financial reasons (carry trade strategies) or as part of a diversification strategy
In the first quarter, economic growth in Central European countries improved as expected (Poland: +0.4% q/q in Q1 2024; Hungary: +0.8% q/q; Czech Republic: +0.5% q/q; Slovakia: +0.7% q/q; Romania: +0.5%). Although details of the accounts are not yet available, there is strong evidence that growth was primarily driven by consumption, as reflected by the boost in retail sales.
The debate on monetary sovereignty in emerging countries is resurfacing with, on the one hand, the plan of Argentinian President Javier Milei to dollarise his economy, and on the other, the temptation of several West African country leaders to abandon the CFA franc. From a strictly economic point of view, dollarisation is effective in tackling hyperinflation. However, to be sustainable in the long term, it imposes severe constraints on fiscal policy and the nature of foreign investment. Conversely, the abandonment of the CFA franc with the aim of recovering the flexibility of an unpegged exchange rate regime and greater autonomy of monetary policy, is an argument that is either weak in theory or unconvincing in practice, even in the short term.
In the first quarter of 2024, China’s economic growth was stronger than expected and was largely driven by the export-oriented manufacturing sector. Against a backdrop of sluggish domestic demand and strategic rivalries, particularly with the United States, Beijing is further developing its industrial policy to support economic growth and strengthen "national security". Priority is given to the high-tech and energy transition sectors. With considerable support from the government, these sectors are moving up the value chain, increasing their production capacity, lowering selling prices and gaining export market shares. The flood of green tech products is expected to lead to further trade confrontations in the coming months.
The reform policies initiated since Narendra Modi came to power in 2014 are expected to continue with his very likely re-election next June. His economic performance has been positive overall, with robust growth, a strengthening banking sector, a surging investment rate and infrastructural deficiencies being reduced. However, the country is still facing many substantial structural challenges. GDP per capita is still much lower than in other Asian countries (China, Vietnam and Indonesia), the manufacturing sector is barely growing and the country fails to create enough jobs for young people, who are still experiencing very high unemployment rates.
Subianto Prabowo will become the new President of Indonesia on 20 October. He will inherit a strong economy with robust and stable growth (5.1% on average over the last ten years, excluding the COVID-19 period), a low fiscal deficit, moderate public debt and sound external accounts. However, there are major challenges ahead for the new President. In the next decade, the country’s demographic dividend will begin to fade. He will need to adopt reforms more quickly in order to get significantly more young people and women into employment and attract more foreign direct investment. Without this, Indonesia will become an “old” country before it becomes a "high income" country.
On 15 May 2024, Lee Hsien Loong, Singapore’s Prime Minister for the past twenty years, will hand over the reins to his current Deputy Prime Minister, Lawrence Wong. This change in leadership is not expected to alter the highly disciplined management of monetary and fiscal policies, or the government’s economic development strategy, which is aiming, in particular, to adapt the country to climate change and to boost its potential growth. In 2024, economic activity is expected to pick up slightly, notably thanks to the improving global electronics cycle; inflationary pressures should continue to abate, but will nonetheless remain high. Against this backdrop, the authorities are expected to keep monetary policy settings unchanged this year.
Romania recorded a softer economic growth in 2O23 but remained one of the best performing economies in the region. The short-term outlook is strong. The gradual fall in inflation since the end of 2022 should pave the way for an accommodative but cautious monetary policy. The persistence of twin deficits remains a major concern. So far, the country has been able to rely on a certain resilience in capital flows to partly offset the current account deficit. Fiscal consolidation is one of the government's short-term priorities, although there is limited room for manoeuvre this year given the busy electoral calendar. Public debt is sustainable in the short and medium term.
Since the local elections on 31 March, financial conditions have stabilised. Markets reacted favourably to the defeat of the ruling party at local level. The result of the elections is not expected to change the economic stabilisation programme of Finance Minister Mehmet Simsek. The Monetary Policy Committee maintained its key rate at its last meeting in April, a rate which it had raised again in March. Household consumption continues to drive growth, which will remain sustained this year unless fiscal policy becomes very restrictive, which is unlikely. The rebalancing of growth components is underway, although it is not yet sufficient to curb the non-energy current account deficit.
After stagnating in the second half of 2023, economic activity has strengthened in recent months, supported by a surprisingly resilient labor market, amongst other. This good start to the year was however not overtly obvious given the divergence of many indicators. The pace of rate cuts is expected to slow down in the second half of 2024. Monetary easing is indeed coming up against slower-than-expected disinflation and upside risks to inflation expectations. The latter have been dented by the revision of the budgetary targets for 2025-28 and a more pronounced interventionism by the State, anxious to revive investment
Chile’s economic growth stabilised during the second half of 2023, inflation eased and the current account deficit fell. The expected upturn in activity in 2024 should ensure that growth comes close to its potential, driven by household consumption, private investment and mining exports. Political pressures have eased after the decision to suspend the process of adopting a new Constitution (which is expected to be left alone for a number of years). Nevertheless, Gabriel Boric’s government and the opposition parties are still clashing on a number of areas, most notably, fiscal reform, pension system reform and the energy sector framework law.
The economy of the United Arab Emirates (UAE) is still one of the most dynamic in the region. The strong performances are due to the UAE's sectoral diversification and the attractiveness of Dubai to tourists and investors. Despite the tense geopolitical environment, the short-term outlook is bright, as hydrocarbon production is expected to increase and the steady growth in services and real estate is expected to continue. However, geopolitical risk, oil market uncertainties and US monetary policy are all factors that could threaten this outlook. Uncertainty about the pace and scope of the low-carbon transition is making the longer-term outlook much more uncertain
The South African economy narrowly avoided recession at the end of 2023. The poor quality of the country’s infrastructure is significantly slowing down activity. In addition, the government lacks fiscal leeway and disinflation is slow and uneven, forcing the central bank to maintain its restrictive monetary policy. Faced with numerous macroeconomic challenges, the African National Congress (ANC) has initiated long-awaited reforms, but at a pace that is deemed insufficient. It is likely to pay the price at the general elections in May and lose its absolute majority in Parliament for the first time in its history. The choice of the party with which to form a coalition could disrupt the momentum of reforms and the trajectory of public debt.
In Morocco, the latest GDP growth and inflation figures were better than expected, but the latest drought in the country undermines its economic recovery. Regional instability is another real risk to bear in mind. However, the country's adequate economic policy management and solid fundamentals remain supportive factors of macroeconomic stability.
At a time when Senegal is preparing to launch its gas and oil production, the reconfiguration of the political landscape is generating immense hope among the population. The opposition candidate, Bassirou Diomaye Faye, won the presidential elections in the first round on the back of a breakthrough project. But the challenges ahead are huge, especially on the employment front. Despite a decade of robust growth, the economy has undergone little transformation and suffers from low productivity gains, which it will be difficult for the sustained investment effort to continue to mask, given the now high level of debt.
In 2024, 24 new countries will join the Guided Trade Initiative of the African Continental Free-Trade Area (AfCFTA). With the aim to boost intra-regional trade, the AfCFTA could increase Africa’s revenue and improve its resilience to external shocks. However, beyond tariff barriers, some structural challenges must first be addressed to see the full potential of the largest free-trade area in the world.
