China Growth Outlook
A key growth headwind of the past two years – COVID – refuses to fade into the sunset, and is staging a comeback in China. The number of cases is up sharply, with Shanghai going into a partial lockdown in the next few days. The COVID wave is one of the reasons why the consensus forecast for China’s 2022 growth started to slip lately, and is currently hanging just above 5% – noticeably lower than the official growth target of about 5.5%. China’s official activity gauges (due in a couple of days) will be closely watched, but it is worth noting that one of the mid-month gauges (Emerging Industries PMI) dropped by several points below the contraction/expansion zone.
Russia/Ukraine War and Supply Chain Disruptions
EM Growth Headwind #2 is a spike in commodity prices and new supply chain disruptions related to the Russia/Ukraine war. This particular factor, however, is more “selective”. Commodity/food importers will suffer, but commodity exporters might do very well – in particular, if there is support from other factors, such as politics. About a year ago, Saudi Arabia was expected to grow at about the same rate as Russia in 2022 (2.5-3%, see chart below), but a combination of rising oil prices and improved relations with Israel propelled the growth forecast to 6.5%.
EM Rate Hikes and Growth
EM Growth Headwind #3 is aggressive policy tightening, and it is especially relevant for EMEA and LATAM. The 2022 consensus growth forecast for LATAM had been downgraded the most – Brazil is now expected to expand by a mere 0.5% in real terms (down from around 2.5% projected about a year ago – see chart below). The approaching presidential elections can also weigh on sentiment going forward – this week’s replacement of Petrobras CEO (Petrobras is Brazil’s state-owned petroleum giant) due to rising fuel prices is a good example of the pre-election shake-up. Stay tuned!
Chart at a Glance: EM Growth – Variety of Outcomes
Source: Bloomberg LP
Originally published by VanEck on March 29, 2022.
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