In 2022 as a whole, average economic growth in Emerging Markets (EMs) slowed to an estimated 3.8% down from 6.6% in 2021. The slowdown followed the post-Covid shock rebound of 2021 and was much aggravated by the rise of powerful headwinds throughout the year, including: the repercussions of Russia’s war in Ukraine on activity in Europe and global inflation, monetary tightening to fight against price pressures, the weakening in Chinese economic growth (notably resulting from Covid-related disruptions and the crisis in the property sector), and the downturn in world trade.
Economic growth in emerging economies weakened again significantly in Q4 2022. In China, new Covid disruptions severely affected private demand and industrial activity once again; inflation became more entrenched whereas tighter monetary policies started to hurt domestic credit in most EMs, and exports took a nosedive in manufacturing countries in Asia and continued to fall in Central Europe.
EMs will continue to face major external headwinds in the short term. True, the expected growth rebound in China should help support EMs’ activity. But the rebound should have a limited impact on trade of manufactured goods as Chinese demand for manufactured goods is mostly destined for the export sector, and much less for its domestic market. As it happens, economic growth in advanced economies is projected to slow significantly. Besides, the Chinese real estate sector may at best stabilize in 2023 and the impact on commodities is likely to be moderate.
Actually, weaker global demand for goods may affect EMs more broadly than in 2022 for both manufacturing countries and commodity exporters. The former will be generally hard hit by the economic downturn in their main trade partners, with industrialized Asian countries also suffering from the deepening slump in the world electronics cycle. The semiconductor industry is expected to contract in 2023, adjusting after nearly three years of strong expansion. Regarding commodity exporters, they should suffer from a deterioration in their terms of trade due to the broad decline expected in world commodity prices in 2023. Lastly, although international financial conditions for EMs have improved recently, borrowing costs should remain high in the short term (and higher than they were at end-2019), both on international markets because of higher US interest rates and higher country risk premium and on local markets given tighter monetary policies
Excluding China, average economic growth should slow significantly to 2.9% in 2023 from 4.2% in 2022. China and Hong Kong, Thailand, Morocco and Senegal are the very few countries in our sample of emerging countries expected to post a growth acceleration in 2023.
Economic growth – Recent performance
