Emerging markets look well placed….
Emerging markets also look poised to benefit from a global economic recovery in 2021, with rates of growth again superior to those of developed markets. Debt-fuelled fiscal expenditure and accommodative monetary policy should help to achieve this growth, albeit indirectly, as developed countries have more flexibility in both forms of stimulus. The burden of COVID-19 and the associated restrictions, heavier in Latin America, emerging Europe and South Asia versus East or Southeast Asia, should be lifted thanks to the growing number of vaccines. This is likely to contribute to the unleashing of employment and pent-up consumption. Improvements already seen in trade and manufacturing — especially in East Asia where COVID-19 was better contained — could well continue. Upward pressure on commodity prices, consistent with a recovery in manufacturing, is expected to have a greater impact in emerging markets as well. Finally, the Fed’s policy shift to “average inflation targeting” means that the external risk to emerging markets of a strong dollar and tightened liquidity as growth accelerates has reduced considerably.