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GEMs Economic Viewpoint

  GEMs Economic Viewpoint: Everything you need to know about GEMs – 2020 midyear edition

•  Korea, Russia, China top the GEM-10 in our semi-annual ranking of 5,000 indicators for 71 countries;overall #1 is Taiwan
•  Brazil, South Africa (both due to high debt) and Turkey (due to low FX liquidity) remain the most vulnerable among bigger Ems
•  Many frontier markets highly vulnerable, foremost Venezuela, Lebanon, Bahrain, Oman, Iraq; debt relief a long-term EM theme

1st ever decline in EM GDP

The Covid-19 shock is leading to a drastic worsening in emerging market fundamentals. Real GDP is contracting for the first time in the (only just about 30 years long) history of EM data: in PPP-weighted terms growth is -2.5% even though China is still pulling off +2%. As a consequence the weighted fiscal deficit averages 4.5% of GDP this year. At least inflation and current accounts are unproblematic which allows central banks to run loose monetary policy: the average real policy rate has dropped below 2% (Charts 2-7).

Korea, Russia and China top GEM-10
Taiwan takes the overall top position of the most resilient among our 71 economies, but among the big GEM-10 this prize goes to Korea (Chart 1). Korea boasts some of the best current account, fiscal and external liquidity numbers. Russia slips behind Korea due to the stronger impact of the global recession on its resource-dependent economy as well as the more adverse domestic Covid-19 situation. However, thanks to the flexible exchange rate, Russia can still maintain a current account surplus and a small fiscal deficit even at much lower oil prices, and it maintains low debt and high reserves. China is the only big economy forecast to grow this year, but debt levels are becoming high.

South Africa, Turkey and Brazil still weakest big EM
South Africa is now the worst-ranked among the GEM-10 due to the fallout from the twin shocks of a domestic Covid-19 crisis and decline in global commodity prices. We are very concerned about the trajectory of public debt in South Africa in the years ahead. Turkey is the 2nd lowest ranked among the GEM-10 due to high inflation and external debt and the lowest reserve coverage among the major EM. Brazil is the last in the trio of the most vulnerable big EM economies, largely due to high public deficits and debt. 

Many frontier markets are highly vulnerable
The most vulnerable among our 71 countries are Venezuela, Lebanon, Bahrain, Oman and Iraq (Chart 1). It is no coincidence that all of them depend (indirectly in Lebanon's case) on crude oil prices. We remain concerned that many frontier markets will require significant debt relief from official and private creditors over the years to come.

5,000 scores for 71 markets - NEW countries & indicators
This semi-annual guide covers 71 countries including all mainstream EMs as well as many frontier markets. In this edition we add several smaller LatAm countries such as Costa Rica and Panama. For each, we present about 70 scores, totaling almost 5,000 indicators, including growth, inflation, and fiscal, external and bank vulnerability. This time we also add crude oil exports/imports and the split of external debt into domestic and foreign currency. The charts at the beginning depict the top and bottom performers for key categories and the subsequent tables show the complete rankings.