Earthquakes and economics: Divergence in EM debt markets

The recent Annual Meeting of the IMF reinforced that EM debt investors should pay extra attention to countries’ individual circumstances, write Aviva Investors' Aaron Grehan and Carmen Altenkirch.

The Annual Meetings of the International Monetary Fund (IMF) and World Bank on October 8 to 14 to discuss issues of global concern began on shaky ground; quite literally, as a 6.0-magnitude earthquake rocked the Indonesian island of Bali, the location of this year’s event. The choice of destination was particularly apt given so much of the world’s attention has been on the challenges facing emerging countries.

The IMF cut its global economic growth forecasts for this year and next – the first reductions in more than two years – citing the worsening trade war between the US and China and a sharper-than-expected rise in US interest rates. The fund projected global output will expand 3.7 percent this year and next, down from the 3.9 per cent growth it projected just three months ago. The risks remain tilted to the downside.

However, while the overall message was glummer, with more emphasis on the downside risks, it was acknowledged that global growth remains healthy. That is especially true of emerging economies, with growth in the main group of nations seen holding steady at 4.7 per cent next year while low-income countries, such as those in Sub-Saharan Africa, should see growth accelerate. In comparison, the outlook for the wealthiest nations is less impressive, with the IMF expecting growth to slow to 2.1 per cent in 2019 from 2.4 per cent this year. US growth is set to slow to 2.5 per cent from 2.9 per cent as the impact of fiscal expansion fades; growth in the euro zone is set to slow to 1.9 per cent from 2.0 per cent and in Japan to 0.9 per cent from 1.1 per cent.

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