EM forecast update: No bulls in this China shop
This quarter has seen relatively few revisions to the growth outlook for 2015 and we continue to expect it to be a difficult year for most of the BRICs.
China: stimulus won’t revive growth
The authorities’ stimulus efforts this year have struggled to raise growth to the 7.5% target, and so we expect 2015’s target to be lowered to around 7%. We expect further easing in 2015 and 2016 as a result of lower inflation (from cheaper oil) but believe authorities will move cautiously while still aiming to slow credit growth. Consequently, growth will continue to ease through 2015 and into 2016, as investment and real estate drag on performance and we expect GDP of 6.8% and 6.5% in those years respectively.
Brazil: Sceptical of reform hopes
Brazil disappointed investors by voting Dilma Rousseff back into the presidential office in October. Reform hopes have been dimmed, if not dashed, and our longer term outlook is now gloomier. The positive, if there is one, is that upside risks remain to our 2016 GDP forecast of 1.5% (compared to 1% expected in 2015). Should Dilma's cabinet implement credible reform plans, investment would pick up and boost growth.
India: Still a bright spot, but be wary of political risk
The reform agenda remains the key to Indian growth hopes, and while there have been some moves forward, political obstacles remain. Presently, 2015 looks marginally stronger thanks to oil price weakness, and we expect some success on reforms to lead to greater investment, helping GDP reach 5.7% in 2015 and 6.3% in 2016. On the policy front, although inflation has been easing rapidly, the central bank appears to view this as temporary and so we do not expect any rate cuts until the second half of 2015.
Russia: Growing tail risks
A weaker oil price is, unsurprisingly, bad news for Russia. Combined with sanctions and still high tensions in Ukraine, we have turned more negative on the country's growth outlook. Two key tail risks are a further escalation in the Ukraine situation and corporate defaults (which could occur given many firms’ lack of access to international debt markets). Overall, we find it very difficult to be positive on the Russian outlook and forecast GDP growth of -1% in 2015 and -1.1% in 2016.