(Finance) – S&P Global Ratings sees a worsening of risks in all emerging markets (EM). The conflict in Ukraine, persistent inflationary pressures, tighter-than-expected financing conditions and China’s uncertain growth trajectory are indeed raising concerns about the future economic performance of EMs. The rating agency has therefore reduced growth forecasts of EM GDP to + 4% for 2022 and + 4.3% for 2024 (from 4.8% and 4.4% respectively). Beyond the shock on the Russian economy, most of the downward revision of these estimates concerns the‘EM area EMEA, while the impact on growth is more limited elsewhere.
It is emphasized that inflation has risen in all EM, especially in the EMEA area. Supply shocks due to rising raw materials and logistics costs are exacerbating ongoing inflationary pressures. S&P expects consumer price inflation in average EM for 2022 to be 1.2 percentage points higher than the forecast released in November. As a result, the rating agency has increased assumptions on interest rates for 2022 and beyond.
A focus of S&P’s monthly update on emerging markets is the China’s “Zero-Covid” policy, which weighs on the growth of the largest Asian economy. Cases of Covid-19 have risen to all-time highs, forcing the government to implement closures, as in the case of Shanghai. This puts the supply chains under further strain, as Shanghai is the largest port in China and the world. Currently, closures are limited to some regions, but the risk of further restrictions and consequent supply chain disruptions in other parts of the country persists.
There vulnerability to ongoing developments varies from one country to another, and some are more resilient than others. For example, commodity exporters in LatAm, as well as South Africa, have experienced significant capital inflows since the conflict began. However, the drastic increase in global inflationary pressures, as well as the slowdown in global growth, will weigh on all EMs this year.