S&P downgrades emerging markets growth forecast

S&P Global Ratings has lowered its real GDP growth forecast for emerging markets (EMs) to 3.8% in 2023 from 4.1% in the September projection, Report informs, citing the agency’s report.

“The downward revision to growth is for all EMs except for China and Saudi Arabia, with most economies poised to expand below their longer-run trend rates. EM inflation appears to have reached the peak or will do shortly in this cycle; however, monetary policy rates are likely to stay high for the time being, with exception of few economies in Latin America, where we expect interest rate cuts in 2023.

Credit conditions in EMs will remain pressured during 2023, while we expect sovereigns and households to be particularly hit by the likely economic downturn,” reads the report.

“The corporate sector continues to present a mixed picture; some sectors will be able to protect profits by passing costs through prices in goods and services, while others will suffer from subdued demand (consumer products, chemicals or building materials).

Banks are well positioned to face the downturn, and higher interest rates could help bolster net interest margins.

The balance of risks for EMs is firmly on the downside. Despite recent moderation in energy prices, the outlook remains subject to geopolitics-related risks, and we don t expect terms-of-trade to improve significantly over the course of 2023, exchange rates. S&P Global Ratings has raised its oil price forecasts for 2023 and 2024 due to supply related factors.

Zero-COVID policies have been eased in China. We expect household consumption to grow; however, a likely increase in incidence of cases will weigh on consumer confidence in the nearest term. We also expect that easing of restrictions should alleviate some supply-chain disruptions globally and improve financing conditions in EM Asia.”