Crédito y Caución (Atradius) | After an uncertain start into 2022 due to a new wave of the pandemic, emerging market economies (EMEs) face new headwinds triggered by Russia’s invasion of Ukraine. Growth in EMEs as a whole is forecast to decline from 6.9% in 2021 to 3.7% in 2022. The events in Ukraine come on top of other issues, such as supply chain bottlenecks renewed Covid infections in some regions. Additionally, fiscal support in EMEs has been withdrawn, while central banks in many major markets have already been hiking policy rates in response to higher inflation.
Eastern Europe will be most impacted by the Russia-Ukraine conflict, as it faces a loss of trade relationships with Russia, currency depreciation, and a refugee crisis. Major commodity importing countries such as Turkey also see the negative effects of rising commodities prices. On the other hand, energy exporting EMEs benefit from the recent price increases. Latin America is less impacted by the conflict as its direct exposure to trade with Russia and Ukraine is negligible.
While growth is moderating, Emerging Asia remains the fastest growing region in 2022 (5.0%). In China, the rise in global energy and commodity prices and lower global trade growth will weigh on GDP. Additionally, there are domestic constraints due to the ailing property sector and occasionally imposed lockdowns in order to fight Covid outbreaks. While growth should accelerate as of Q2 due to the implementation of stimulus measures, we nevertheless expect China’s GDP expansion to slow down to 4.9%, after 8.1% in 2021.
In India the vaccination rollout is progressing, and we expect domestic consumption recovery to continue in 2022. However, there will be external headwinds from higher commodities prices, causing GDP growth to slow to 7.3%, after 8.1% in 2021. Latin America rebounded strongly from the deep economic contraction caused by the pandemic. However, the recovery has lost steam, as ongoing challenges (high inflation, monetary tightening) are further aggravated by Russia’s invasion.
We forecast Brazil’s GDP growth to slow from 5.0% in 2021 to only 0.7% in 2022. The upcoming presidential election is feeding concerns about the future policy direction. Argentina’s growth will decrease from 10.2% last year to 3.1% in 2022. The country is facing double digit inflation rates, due to monetary financing and as the central bank was slow in raising interest rates. While Argentina has reached a deal with the IMF, avoiding an immediate default with the lender, its debt position remains fragile.
Eastern Europe (including Turkey) is facing a recession (-1.9%) in 2022, as Russia’s invasion of Ukraine shakes the region. Western countries have imposed massive sanctions on Russia, leading to an expected GDP contraction of 10.9% this year, compared to 4.7% growth in 2021. We expect a sharp decrease of Turkey’s GDP growth to 2.1% this year after an 11% increase last year, as the country continues to struggle with high inflation, supply chain disruptions and geopolitical uncertainty.