Is EM growth due a jab-induced upgrade?
After a slow start, vaccination rates are picking up in emerging markets, which combined with solid fundamentals could push growth forecasts higher.
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Emerging market vaccination rates have badly lagged the developed world. Individual countries have struggled to get to grips with the pandemic and in India particularly it remains severe. We are, however, finally getting indications that the situation is improving in some countries (see chart).
We anticipate that developed countries will have mostly procured sufficient supplies by early in the second half of the year. This will allow more to flow to those emerging countries that have been unable or unwilling to secure enough for large or potentially total population vaccinations.
If so, and despite still high cases of Covid-19 across numerous emerging economies, we think both sentiment and growth prospects could improve markedly. As the table shows, over the past few months, consensus growth numbers have moved up modestly for many countries.
We believe the main driver for this has been more robust outlooks for the rest of the world rather than anything specific to any particular EM country. The "raw materials" for better EM growth – fair to cheap currency levels, solid external account balances, and historically high currency reserve levels – are in place. But against this, some fiscal retrenchment and perhaps slightly higher real yields locally will constrain more aggressive forecasts.
As we get closer to any meaningful change in the provision of liquidity by developed countries, it becomes more important that emerging countries shed the worst vestiges of the pandemic as well and can rely on internal growth drivers and sound policy frameworks. That is why the uptick, however modest, in vaccination rates is particularly welcome.
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