August DM Data Snapshot: Momentum Weakening Further  

 

• While aggregate Developing Market (DM) growth in 2022 will still be greater than the pre-pandemic average, the growth forecast has deteriorated further in the face of persistently high inflation, poor consumer confidence, and increasingly hawkish central banks.
• DMs are expected to expand by 2.4% in 2022, which is lower than the 2.6% growth rate predicted in July but still higher than the 2015-2019 average of 2.1%. Of note, lower aggregate DM growth is mostly due to lower projected growth in the United States (down from 2.4% to 1.8%) and Germany (1.7% to 1.5%), and DM’s dependence on these countries for exports and imports.
• Some economies will grow slower than their pre-Covid five-year average in 2022, either because they are more vulnerable to conflict-related headwinds, such as eastern European countries, or because they are more impacted by lower growth in Mainland China.
• In addition, persistently high inflation is dampening consumer confidence due to its impact on purchasing power, with negative implications for consumer spending and thus headline growth in the months ahead. 
• After rising through to mid-June, DM government bond yields have since eased as investors have started to price in lower inflation in the medium term, amid more hawkish central banks and rapidly mounting growth concerns.

(Source: Fitch Solutions)