Photo by: Bloomberg
Major emerging economies “once again” posted disappointing performances in the second quarter of the year, with growth broadly less dynamic than during the first quarter, owing to weaker commodities prices and currency depreciation against the dollar, new research by international credit insurer Coface has shown.
The firm found that global export growth rate was losing pace, with fears focused mainly on household consumption, which dropped 5% over the quarter.
“However, even though the risk of a hard landing has increased, it is still nonetheless relatively unlikely for the time being, as economic fundamentals remain generally healthy, the jobs market appears relatively resilient and property prices have stopped declining.
“The authorities still have significant leeway, as illustrated by their repeated intervention, particularly the cuts in reference rates and reductions in reserve requirements ratios,” it held.
Coface further observed that several major emerging economies were currently in a recession, including Russia, which remained under pressure from the weak oil price, economic sanctions and geopolitical issues.
So too was Brazil, whose domestic economy remained weighed down by weaker commodities prices, a restrictive policy mix and corruption scandals.
“The loss of investment grade status has exacerbated the risks of a flight of capital and put further pressure on Brazil’s exchange rate. The situation has also deteriorated in other major emerging economies.
“Business activity has also contracted in South Africa. All sectors have been hit, in a context of persistent structural weaknesses,” the report read.
India, it asserted, remained the only exception, benefiting, in particular, from an improved trade balance owing to a reduced energy bill.
However, a more dynamic economic recovery was being hampered by poor weather conditions and weak external demand.
“Emerging economies are not expected to make a significant recovery, given the leading indicators already published for the third quarter. This is particularly the case in China, where the official Purchasing Managers’ Index business confidence index fell to 49.7 in August, which indicates an economic contraction,” Coface reported.
Pressures on spreads also widened significantly across all emerging markets, particularly Latin America, while currencies continued to depreciate against the dollar, as risk aversion generally increased.
Coface added that a more marked slowdown than expected in the Chinese economy, which would impact not only countries in which exports to China represent a significant proportion of their gross domestic product but also commodities-exporting countries.