Following the release of BNP Paribas’ Markets 360 team’s detailed Global Outlook yesterday, BNP Paribas South Africa has released the latest Emerging Markets Q4 outlook with all you need to know on the outlook for key Emerging Markets including South Africa.
According to Jeff Schultz, Senior Economist, BNP Paribas South Africa, “A key focus is on the diverging outlook for monetary policy across the EM spectrum – the dubbed ‘flippers and floppers’ distinction, as inflation proves highly problematic in Latam and CEE, but much less so in South Africa and many parts of emerging Asia that are unlikely to be in a rush to quickly unwind policy support.
“On balance, for commodity exporters like South Africa, we believe that the outlook remains supportive for growth (we now see GDP growth of 5.4% in 2021), but also ZAR asset prices through strong current account surpluses and compression in fiscal deficits thanks to the commodity upcycle. Important here too is our view that the more positive outlook for EM is not only premised on China, but also now the sustained recoveries we expect in other parts of the globe – in particular the US and Europe. In SA we can already see the benefits of the latter, with the ‘delta’ in SA commodity exports to the US some of the largest on record.”
KEY MESSAGES
In emerging markets, we see policy ‘flippers’ and ‘floppers’.
In most of the West (Latam and CEEMEA), robust recovery has come with higher inflation, forcing central banks to flip to rate hikes. In turn, growth in these regions is set to moderate next year.
In emerging Asia, by contrast, sluggish growth and low inflation allow central banks to keep interest rates floppy, at low levels. Along with loose fiscal policy, low rates should support a bounce back.
We expect EM fiscal consolidation will be gradual, due to little appetite for austerity. Politics bears watching, especially in countries with elections.
We believe comfortable current account positions will be sustained across most EM, especially where commodity prices help.
We think the outlook for EM asset prices remains broadly benign, especially if EM decouples from concerns on China.
Still, differentiation favours relative value trades and being more selective.
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ENDS
