EM Key Themes: No Quick Escape From COVID-19 Slowdown

• As the base effects from last year’s contraction fade, the latest signs suggest that emerging market (EM) economies lost momentum in mid-2021. Fitch expects that economic growth will ease over the remainder of the year. 
• Only a few EMs have published Q221 GDP figures, but below-consensus outturns in both the US and China strengthened Fitch’s view that the global economy started to lose momentum in late Q2. Growth in China slowed from 18.3% to 7.9% y-o-y in Q221, which was below the Bloomberg consensus estimate of 8.1%. In the US, consensus expectations that growth would accelerate from 6.4% q-o-q (annualized) to 8.5% were dashed, with growth remaining pretty stable at 6.5% in Q221. 
• While Fitch expects that growth in the world’s two largest economies will remain rapid by recent standards, both are now past the peak of their recoveries. This will weaken a key tailwind that has boosted EM economies in recent quarters. 
• Indeed, the latest figures show that EM export growth slowed in May. Argentina and Colombia were the only two major EMs where export earnings rose faster in US dollar terms than they had in April. Evidence from Turkey, Brazil, Argentina, Chile, China and Vietnam suggests that export growth slowed further in June.

(Source: Fitch Solutions)