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Economic Outlook Emerging Markets Q2 2021: Tailwinds From Stronger Global Growth, But Several Challenges On The Radar


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Economic Outlook Emerging Markets Q2 2021: Tailwinds From Stronger Global Growth, But Several Challenges On The Radar

S&P Global Ratings has raised its 2021 growth forecast for emerging market (EM) economies. We now expect real GDP growth in EMs (excluding China) to average 6.4% this year, after a 5.4% contraction in 2020 (see table 1). This is 50 basis points (bps) higher than in our previous round of projections, and follows a milder-than-expected contraction in 2020 (see table 2). Our 2022 EM growth forecast is broadly unchanged in aggregate. Overall, this suggests that the level of output in EMs (excluding China) will be 1.2% higher in 2022 than in our previous expectations.

There are three reasons for the 2021 upward growth revision. First, prospects for global growth and foreign demand have improved. Notably, we have made significant upward revisions for 2021 GDP growth in the U.S. and China, which suggests a continued strength in two key sectors for EMs: manufacturing and commodities. Second, upside growth surprises in Q4, which imply that carryover from that quarter into 2021 is higher than expected for most EMs. Finally, we take into account a more supportive fiscal stance in some EMs than in our previous assumptions.

Near-term outlook for domestic activity across EMs remains soft, and tied to the pandemic's trajectory and related restrictions, which is mitigated by a resilient foreign trade. We expect growth in most EMs to accelerate as the year progresses, as vaccinations gather pace and global demand strengthens.

India made a major contribution to this year's growth forecast upgrade for EMs (excluding China). We revised upward our growth assumptions for India to 11% from 10% due to faster-than-expected reopening of the economy and fiscal stimulus. At the same time, we have trimmed our 2021 GDP growth expectations for the rest of EM Asia, as unfavorable pandemic developments delayed--yet not derailed--the expected economic recovery.

In EM EMEA, major upward forecast revision is for Turkey. Its growth proved to be more resilient to the tightening of monetary policy and adverse pandemic developments, and a strong carryover has prompted our forecast revision to a 6.1% GDP growth this year. However, the risks to Turkey's macroeconomic outlook have risen, following the surprise central bank leadership changes that led to a negative reaction in financial markets.

In Latin America, we revised our 2021 GDP growth forecast up by just shy of 1 percentage point (pp.) to 4.5% thanks to a better-than-expected performance in Q4 2020 and tailwinds from stronger global GDP growth. However, structural weaknesses, especially in terms of investment, will still mean that the region will be among the last among EMs to return to pre-pandemic GDP levels.

Table 1

Real GDP %
2019 2020 2021F 2022F 2023F 2024F
LatAm 0.7 (6.6) 4.5 2.7 2.4 2.3
EM EMEA 1.4 (2.5) 3.7 2.9 2.3 2.3
EM Asia 5.3 (1.3) 8.3 5.4 5.3 5.2
EM 16 4.0 (2.1) 7.1 4.7 4.5 4.4
EM 14 2.0 (4.3) 4.4 3.6 3.1 3.1
EM excluding China 2.6 (5.4) 6.4 4.3 4.1 4.1
Source: Oxford Economics; F--S&P Global Ratings forecast. Note: GDP aggregates are based on GDP PPP Weights. EM-14 excludes China and India. For India, 2019 = FY 2019 / 20, 2020 = FY 2020 / 21, 2021 = FY 2021 / 22, 2022 = FY 2022 / 23, 2023 = FY 2023 / 24

Table 2

Real GDP Changes From November Baseline
Percentage points
2020 2021f 2022f
LatAm 0.7 0.8 (0.3)
EM EMEA 1.0 0.6 (0.1)
EM Asia 0.4 0.7 0.1
EM 16 0.5 0.7 0.0
EM 14 0.6 0.2 (0.1)
EM excluding China 0.7 0.5 (0.0)
Source: Oxford Economics; F--S&P Global Ratings forecast. For India, 2019 = FY 2019 / 20, 2020 = FY 2020 / 21, 2021 = FY 2021 / 22, 2022 = FY 2022 / 23, 2023 = FY 2023 / 24

The resurgence of virus infections and a slow pace of vaccinations in some EMs remain a significant downside risk to our baseline. Conversely, faster progress in vaccinations (in EMs and globally) will accelerate the reopening of services sectors affected by social-distancing measures, including tourism, and boost confidence and spending.

In our view, the recent rise in U.S. Treasury yields indicates greater confidence in a sustained economic recovery (see "Economic Research: Orderly Global Reflation Will Support The Recovery From COVID-19", published on March 22, 2021), a dynamic that's beneficial for EMs. So far, the adjustments to the recent increase in long-term U.S. Treasury yields have been generally orderly for most EMs, and our baseline is that this will remain the case. In other words, we don't expect an EM-wide "tantrum", and at this point see a significant tightening in financing conditions across EMs as a downside risk to our baseline. However, even in the central scenario, some economies might have a more challenging time adjusting to higher U.S. yields, especially those whose external and fiscal imbalances worsened recently.

Uneven Recovery Continues

Economic recovery in EMs continued in Q4 (see chart 1). The pace of the recovery in that quarter slowed after a strong rebound in Q3, while Poland and Malaysia experienced a quarterly contraction in output because of the pandemic-related restrictions on economic activity. Nevertheless, in most cases, Q4 GDP performance surprised on the upside, with the median quarterly annualized growth rate in EMs at 11.8%. For example in the G10, the median growth rate was 1.3%.

The reasons for better-than-expected Q4 GDP outcomes vary by country, but two general trends are worth highlighting. First, we observe continuing resilience of manufacturing and commodities sectors across EMs, underpinned by strong foreign demand. Second, in some economies we saw a faster recovery in consumption than we expected, including those in LatAm, Russia, and South Africa. In some cases, this had to do with an improvement in services as lockdowns were relaxed during that period (Chile and Colombia), or the impact of stimulus (Brazil and Russia). More fundamentally, the pandemic and associated restrictions appear to have less of an impact on economic activity, as people and businesses have been adapting to the situation, with businesses introducing new practices and consumers less cautious compared with the situation in Q2 2020.

Chart 1


The strong rebound in growth in the second half of 2020, after a deep decline in economic activity in Q2, introduces a statistical carryover effect that's significant in many EMs. The carryover tells us what the average real GDP growth rate will be in 2021 if quarterly GDP growth is zero in each quarter of the year. In other words, if output stays flat during the year. For China and Turkey, for example, the 2021 GDP growth carryover is 6%, and for most major LatAm economies it's 4%-5%.

As we noted previously, it's more instructive to look at the levels of output, rather than growth rates, to compare the speed of a recovery from the pandemic-induced recession across economies. We continue to observe a wide variation in the recovery paths in EMs.


China and Turkey are well ahead, with GDP above the pre-pandemic (Q4 2019) levels (see table 3). At the other end of the spectrum, the Philippines' Q4 2020 output was more than 8% below its pre-pandemic level. We noted previously that the pandemic's trajectory is key in influencing the recovery, but there is no one-to-one mapping. The effectiveness of policy response is another crucial factor. Initial conditions, including the strength of economic fundamentals, but also different economic structures – exposure to international tourism and the prevalence of small and midsize enterprises (SMEs) also account for the differences in the magnitude of the decline in output and the subsequent recovery.

Near-Term Outlook For EMs' Domestic Activity Remains Soft

Pandemic situation has worsened in many EMs during Q1. In Brazil, new daily cases are at new highs, and hospitals in several regions of the country are at or near capacity (see chart 2). Poland is grappling with a third wave of infections, with the number of daily cases at all-time highs. India also saw a recent spike in new infections. At the same time, new infections are falling in some EMs including Russia and South Africa.

Chart 2


A resurgence in new daily cases in Q1 and fears over new variants prompted several EM governments to reimpose varying degrees of lockdowns. Mobility indicators dipped almost everywhere (see chart 3). While pandemic developments and associated restrictions in Q1 seem to have a less pronounced effect on economic activity in EMs than in Q2 2020, the impact of the pandemic's intensification will still be keenly felt. Foreign trade should offset some of domestic weakness, but overall Q1 GDP growth is likely to be softer than Q4 2020 for most EMs. And in some cases, we expect a mild contraction in output versus the previous quarter, including in Brazil and Poland.

Chart 3


We expect activity to pick up more noticeably in Q2 and afterwards, as some of the Q1 lockdown measures are relaxed, and the vaccination rollout expands in many EMs, giving more confidence to governments and populations to continue returning to pre-pandemic activity.

A gathering momentum in vaccinations will be important in determining how quickly some of the services sectors, which suffered the most from social-distancing measures, will open up, such as leisure and hospitality. We generally expect vaccination progress in most EMs to lag that in advanced economies, either due to logistical, supply, or in some cases acceptance issues. Nevertheless, the vaccination rollout across EMs varies widely. Chile is rapidly approaching in administering at least one dose to half of the population, but many EMs are still stuck at 5% or below (see chart 4).

Chart 4


S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. We use these assumptions about vaccine timing in assessing the economic and credit implications associated with the pandemic (see our research here: As the situation evolves, we will update our assumptions and estimates accordingly.

Stronger Global Growth To Lift All EM Boats

The 2021 outlook for global growth has improved, and we expect spillovers for EMs across all regions. We now see China's growth at 8% in 2021, up from 7% previously (see "Economic Outlook Asia-Pacific Q2 2021: Three-Speed Recovery Will Benefit From Faster Global Growth," published on March 24, 2021). We have also raised our U.S. GDP growth forecasts for 2021 to 6.5% from 4.2% (see "Economic Outlook U.S. Q2 2021: For The U.S.... Let The Good Times Roll," published on March 24, 2021). External demand has been driving EMs' economic recovery, lifting industrial production, while the recovery in household spending has been lagging behind (Chart 5). And while we expect a shift towards domestic drivers of activity, higher growth in key trading partners is certainly good news for EMs, and will underpin continuing strength in two key EM sectors, manufacturing and commodities.

Chart 5


Mexico will be the key beneficiary of stronger demand from the U.S., its major trading partner, while key Asian EMs--Malaysia and Thailand--will see the largest positive spillovers from China. And Central and Eastern European economies that are integrated into Germany's supply chains, such as Poland, will continue to benefit from strong demand for Germany's exports, especially from China.

Improved global growth prospects (together with supply constraints) should continue to support commodity prices, benefiting key EM commodity exporters. Prices for industrial metals, such as iron ore and copper, have reached multiyear highs, and exports from key EM metals producers, such as Brazil, Chile, and South Africa should continue to perform well thanks to China's resilient demand. And if the U.S. approves a new infrastructure plan, it will provide an additional boost to metals prices. Oil prices have also staged an impressive comeback, with the price for Brent crude returning to pre-pandemic levels. We recently raised our oil price assumptions and now expect Brent to average $60 per barrel (bbl) through the remainder of 2021 and in 2022, up from $50/bbl previously (see "S&P Global Ratings Revises Oil And AECO Natural Gas Price Assumptions And Introduces Dutch Title Transfer Facility Assumption," published on March 8, 2021). In our view, for key EM oil exporters (Russia and Saudi Arabia), higher oil prices mean improving fiscal and current account balances, rather than higher growth in the near term.

Although we see higher commodity prices as a net positive for EMs, we note that a rapid rise, particularly of oil, brings considerable challenges for some EMs. First, oil importers, such as India and Turkey, are facing current account pressures. For Turkey in particular, a sharp rise in commodity prices would complicate the progress of reducing a current account deficit that averaged 5.3% of GDP in 2020. Second, the upturn in international commodity prices is lifting domestic energy prices and headline inflation (see "Rising Commodity Prices Are Generally Good News For Emerging Markets--But Watch Out For Inflation," published on March 19, 2021).

The outlook for international tourism remains uncertain amid a slow re-opening of the borders and the recent resurgence of infections in Europe and some EMs. We continue to expect only a very gradual recovery in international travel, which will weigh on the economies where tourism is an important source of employment and foreign currency revenues, such as Thailand and Turkey.

Global Financing Conditions: The Rise In Long-Term U.S. Yields Is A Reflection Of Stronger Global Growth

Global financing conditions remain supportive for EMs, with interest rates in most major economies at near-record lows, and still a large stock of negative-yielding debt in advanced economies underpinned by a record-breaking monetary stimulus. The adjustments to the recent increase in long-term U.S. treasury yields have so far have been generally orderly for most EMs, given that it has been accompanied by higher global growth expectations, a dynamic that is good for EMs. U.S. dollar EM government and corporate spreads have remained near their recent lows, and the increase in exchange-rate volatility has been slower than in past periods of rising U.S. long-term yields, such as Taper Tantrum. As long as the trend in rising long-term U.S. yields is one of an orderly reflation, which is our base-case scenario, we expect EM credits, especially the higher quality ones, to continue to adjust in an orderly fashion.

Chart 6


The increasing divergence between the U.S. rebound and the rest of the world could open up interest rate and growth differentials that could lead to capital outflows from EMs, leading to currency depreciation and financial market volatility, which could force central banks to implement defensive interest-rate hikes. This is a downside risk to our baseline. However, even in the central scenario, some economies might have a more challenging time adjusting to higher U.S. yields, especially those whose external and fiscal imbalances worsened recently. On the fiscal side, Brazil and South Africa and stand out, while Turkey's already significant external vulnerabilities have increased further. In Brazil, we're already seeing a more abrupt market adjustment in domestic debt markets through rapid increases in long-term yields this year (see chart below), which further complicates debt-sustainability dynamics. In South Africa, 10-year domestic currency government bond yields have risen about 70 bps this year. While less abrupt, the rising cost of funding presents a challenge, given that interest rate payments in South Africa are already among the highest among key EMs.

Chart 7


In Brazil, short-term yields are also increasing, but due to idiosyncratic factors. Namely, a high share of short-term domestic government debt is due over the next 12 months, roughly one quarter of total outstanding debt. This has increased roll-over risk and pushed the short-end of the curve higher as investor demand higher compensation to extend maturities that are coming due. This prompted the Brazilian central bank to increase interest rates by 75 bps to 2.75% this month, and signal that more hikes are coming. This complicates Brazil's overall fiscal picture, with gross debt to GDP increasing by 15 percentage points last year to 90% of GDP, and higher interest rates, without an improvement in growth, will mean that a more dramatic adjustment to the primary fiscal deficit will be needed to bring debt ratios down.

More Supportive Fiscal Stance In Some EMs, Divergent Paths For Monetary Policies

The degree of fiscal support will continue to vary across EMs this year. EM governments are navigating a complicated landscape, because they want to avoid a premature tightening that may undermine an economic recovery, but need to communicate a credible consolidation plan. In some EMs, fiscal stance is set to be more supportive than in our previous assumptions. India announced additional measures that will further ease fiscal policy, mainly by boosting spending, in the next 12 months. Brazil announced a new, albeit modest, fiscal stimulus package in March.

Monetary policies have started to diverge. Most EM central banks would prefer to stay accommodative as long as possible, given still significant economic slack, and the expected phaseout of a fiscal stimulus. However, the recent increase in energy prices, combined with stronger demand-side pressure on prices, and in some cases, weaker currencies, is worsening the near-term inflation outlook. This means that pressure is building for several EMs to start normalizing their record-low interest rates, especially amid rising global bond yields. Some, such as Brazil, Russia, and Turkey, have already tightened policy, albeit in part for idiosyncratic reasons. We expect several Latin American economies starting to tighten as well. By contrast, in EM Asia, we expect most central banks to keep rates unchanged this year. We expect inflation in the region to rise this year but remain subdued relative to medium-run average levels, despite higher commodity prices. The passthrough to core inflation, excluding volatile items such as food and energy, will remain weak so long as activity is well below its potential level. The exceptions are India and the Philippines where core inflation is high and rising. A robust services sector rebound, and associated rise in hiring, will be needed to ignite inflation in the region.

Overview Of Our Regional Macroeconomic Assumptions

EM Asia: Better Outlook For China And India, Delayed But Not Derailed Recovery For The Rest

We revised upward our 2021 GDP growth for EM Asia to 8.3% from 7.6% previously, following a contraction of 1.3% in 2020. However, this mostly reflects upward revisions to our outlook for China and India, while we have revised down our 2021 projections for Indonesia, Malaysia, the Philippines, and Thailand.

In China, we now project an 8% growth this year, up from 7% previously. The economy retained substantial momentum through the final quarter of 2020, mainly due to three key drivers: infrastructure investment, real estate, and exports. Early indications from 2021 suggest that the shape of China's recovery remains intact for now. While we expect tighter fiscal, credit, and housing policies to cool infrastructure and real estate investment growth through this year, these drivers may last for a little while yet. So far, consumption has remained soft throughout the recovery, but we expect a pick-up in household spending this year, as services sector hiring picks up and the vaccine rollout proceeds.

In India, we have raised our 2021 growth forecast to 11% from 10% previously for fiscal year 2021-22 due to an expansionary fiscal policy, which should boost domestic private spending, and to faster reopening of the economy. High frequency indicators show a strong pickup in trade and manufacturing. However, COVID-19 risks loom. There has been a recent spike in new infections, some targeted lockdowns have been implemented already, and more of these will likely occur. The speed of vaccination will determine the severity of the economic impact of the fresh COVID-19 wave, as further mobility reductions and lockdowns may be prevented. The cost of broader lockdowns on the economy would be very severe as they would cut the recovery short.

In the rest of key EM Asian economies, we have lowered our 2021 GDP growth forecasts. In most of these cases, unfavorable pandemic developments delayed, yet not derailed, the expected economic recovery. In Indonesia, for example, a surge in new daily COVID-19 cases will result in a weak first quarter, indicating weak consumer confidence and retail sales, which is likely to push back recovery by about three months. We revised our growth forecast for this year lower by 0.9 percentage points to 4.5%, followed by above-trend 5.4% in 2022. In Malaysia, mobility restrictions enforced this year to manage the pandemic prompted us to lower our GDP growth forecast for this year to 6.2% from 7.5% previously. In Thailand, while new-daily cases remain relatively low, the outlook for household spending overall remains subdued given weak consumer confidence and adverse labor market conditions. The tourism sector that accounts for about 11% of the economy is still largely missing in action. As a result, we forecast growth of 4.2% for 2021, down from our earlier forecast of 5.0%.

For more details on our macroeconomic assumptions for EM Asia, see "Economic Outlook Asia-Pacific Q2 2021: Three-Speed Recovery Will Benefit From Faster Global Growth," published on March 24, 2021.

EM EMEA: Third Wave, Milder Economic Impact

The recent resurgence in infections has weakened the near-term outlook in the emerging European economies, but we expect only a limited effect from the third COVID-19 wave on overall growth in the region. We observe that every new round of restrictions has a less onerous impact on economic activity, given that both the supply side and consumers adjust their behavior. Moreover, resilient trade is offsetting some of the domestic weakness. Once the pandemic situation improves, domestic activity should pick up more noticeably. Many EM European economies have made a good progress in the vaccine rollout. Overall, EM Europe continues to be among the leaders in terms of getting back to pre-pandemic levels of activity. Turkey's GDP already exceeded its Q4 2019 level in Q3 last year, and we forecast output in Poland and Russia to return to their pre-pandemic levels in Q3.

We project Poland's economy to grow 3.4% in 2021 (a downward revision of 0.4 ppt) after a contraction of 2.7 % last year. We now expect a mild GDP decline in the first quarter, given the resurgence of cases and reimposition of restrictions. However, this is partly offset by a stronger-than-expected Q4 2020 performance. While Poland is less exposed to the pick-up in U.S. demand, its manufacturing sector is closely integrated into the German industrial supply chain and will continue to benefit from the strong external demand for that country's manufactured products.

While Poland is eligible to grants of up to 5.5% of its GDP under the European Commission's Next Generation plan, it remains to be seen whether the country will come up with a national recovery plan in line with the guidelines established by the Commission that allows Poland to receive the entire allocation. In order to receive grants from the Resilience and Recovery Facility, each recovery plan needs to include a minimum of 37% of climate investments and reforms, and a minimum of 20% to foster digital transition.

We have revised upward Russia's real GDP growth forecast to 3.3% in 2021 from 2.9% previously. Higher growth in Russia's non-energy exports, in line with stronger global demand, is one factor behind our growth revision. Another is somewhat faster easing of (already mild) social-distancing measures amid an improving pandemic situation.

Fiscal spending picked up noticeably in Q4 2020, boosting domestic demand, but also pushing up imports and inflation. This trend is fading away, and according to current budget plans, fiscal policy will tighten this year because government spending is set to decline in real terms. Additional budget revenues from higher oil prices will be transferred to the National Wealth Fund (NWF) and invested in foreign assets, rather than spent, in line with the fiscal rule. Nevertheless, the liquid part of the NWF exceeds 7% of GDP, and the fiscal framework allows the government to use the assets above this threshold to finance domestic investment. Given the modest pace of economic recovery and parliamentary elections in September, additional fiscal stimulus (either through the budget or NWF) is likely. For the moment, it's an upside risk to our forecast.

On the downside, the risk of additional international sanctions has risen. Our view is that Russia's policy settings and strong fiscal and external balances make the country sufficiently resilient to absorb risks to fiscal or financial stability from additional sanctions. However, the situation is uncertain, and the risk premium on Russia's assets has risen recently, weighing on the exchange rate and pushing up government bond yields. The Central Bank of Russia's (CBR) decision to hike its policy rate in March by 25 bps to 4.50% was primarily driven by the CBR's assessment of rising domestic inflationary pressures from a faster recovery in demand. However, it needs to be also viewed in the context of the risk to the exchange rate and inflation outlook stemming from geopolitical factors.

Turkey's quarterly GDP growth slowed down sharply in Q4 to 1.7% after an exceptionally strong Q3 growth of 15.8%, but the economy proved more resilient to the surge in infections and monetary tightening than we expected. A strong statistical carryover has prompted our substantial upward forecast revision to a 6.1% real GDP growth this year. Global economic recovery will continue to support Turkey's exports, although the country is less exposed to trade with the U.S. and China, where demand is recovering faster than in the eurozone, Turkey's key trading partner. Following the severe slump in international tourism last year--an important source of foreign currency revenue in Turkey--we expect a recovery in 2021. The tourism sector remains exposed to downside risks given the recent coronavirus resurgence in Europe, amid vaccination delays, and subsequent uncertainties about resuming international travel. Tourist flows from Russia are recovering faster, which provides an upside.

Overall, the risks to Turkey's macroeconomic outlook have risen, following the surprise central bank leadership changes that led to a negative reaction in financial markets (see "Recent Events Could Further Expose Turkey's Balance Of Payments Vulnerabilities," published on March 24, 2021). The baseline scenario assumes that the lira stabilizes at somewhat lower levels than in our previous assumptions. This macroeconomic narrative also assumes that the cutting cycle from the current rate of 19% (following the 200 bps hike in March) will start only after inflation is firmly on the downward path, domestic demand and imports growth slow down, and external imbalances continue to narrow. The uncertainty around this scenario is very high.

Latin America: Stronger Growth In 2021, But The Long-Term Outlook Is Shaky

We have made upward revisions to our 2021 growth projections across the major Latin American economies. We now forecast real GDP growth in the five major economies in the region to be 4.5% this year, following a 6.6% contraction in 2020. Our reginal 2021 growth forecast is 0.7 ppt higher than in our previous forecast for two main reasons. First, the impact of stronger global growth, and in particular a faster recovery in the U.S. economy, will benefit economies in the region. Second, stronger-than-expected Q4 2020 GDP performance in the region, was due not only to continued resilience in commodities and manufacturing, but also to better-than-expected results in the services sectors in countries where stimulus was strong, and/or lockdowns were eased. The region grew 17.5% in quarterly annualized terms in the fourth quarter, compared with roughly a 12% median expansion across major EMs, which results in a strong statistical carryover for GDP in 2021. However, we still expect the region to be the last one among EMs to return to pre-pandemic GDP levels (around mid-2022), mainly due to structural weaknesses that preceded the downturn. The region suffers from low productivity, mainly due to low and inefficient investment. Following above-trend growth both in 2021 and 2022, as the services sectors continue to open and normalize operations, we expect the region to return to its traditionally low GDP growth rate of roughly 2.5%.

Mexico will be the main beneficiary in the region from higher U.S. GDP growth, thanks to continued strong demand for its manufactured goods, but also due to the remittance flows from the northern neighbor. For this reason, our 2021 GDP growth forecast for Mexico has improved to 4.9% from 3.9% previously. We have also made noticeable increases to 2021 GDP growth for Argentina (to 6.1% from 4%), and Colombia (to 6% from 5.1%), due mainly to stronger-than-expected Q4 GDP growth in both cases. Argentina's economy continues to face severe constraints, which include persistently high inflation, a heavy foreign-currency debt burden, and low foreign-exchange reserves. Colombia's economic recovery will be heavily reliant on stronger demand for oil. Chile's fourth-quarter performance was broadly as expected, but the successful vaccine rollout and stronger growth in China, the country's key trading partner, prompted us to increase our 2021 GDP growth outlook to 5.9% from 5.2%.

In Brazil the outlook is more complicated. We have only made a marginal adjustment to our 2021 GDP growth forecast, to 3.4% from 3.2%. We expect a contraction in the first quarter, as the phasing out of stimulus measures hit consumption and a deteriorating pandemic picture reduces mobility. We expect growth to resume in Q2, but there are several downside risk brewing. Monetary tightening has started, as challenging fiscal dynamics, rapidly deteriorating debt ratios, and a substantial amount of short-term domestic debt due this year have prompted the central bank to start increasing interest rates. The rise in U.S. long-term yields didn't help, and additional hikes are coming in the coming months. In addition, political uncertainty is rising, as left-leaning former President Lula is now allowed to run in the 2022 presidential election after a judge annulled a corruption conviction against him, and challenge right-leaning President Bolsonaro's re-election bid. This means 2022 for Brazil is shaping to be a year of tighter monetary and fiscal policy, and lower policy predictability.

For more details on our Latin American macroeconomic assumptions, see "Economic Outlook Latin America Q2 2021: Despite Growth Picking Up, Pre-Pandemic Weaknesses Remain", published on March 25, 2021.

Appendix: Economic Data And Forecast Summaries

Table 4

Real GDP %
2019 2020 2021F 2022F 2023F 2024F
Argentina (2.1) (9.9) 6.1 2.5 2.0 1.9
Brazil 1.4 (4.4) 3.4 2.5 2.4 2.3
Chile 1.0 (6.0) 5.9 3.6 3.3 3.2
Colombia 3.3 (6.8) 6.0 3.5 3.3 3.1
Mexico (0.0) (8.5) 4.9 2.7 2.2 2.1
China 6.0 2.3 8.0 5.1 5.0 4.8
India 4.2 (8.0) 11.0 6.1 6.3 6.4
Indonesia 5.0 (2.1) 4.5 5.4 5.1 5.1
Malaysia 4.3 (5.6) 6.2 5.6 5.0 4.8
Philippines 6.0 (9.5) 7.9 7.2 7.2 7.1
Thailand 2.3 (6.1) 4.2 4.5 3.6 3.7
Poland 4.6 (2.7) 3.4 4.4 3.0 2.7
Russia 1.3 (3.1) 3.3 2.5 2.0 2.0
Saudi Arabia 0.3 (4.1) 2.0 2.7 2.2 2.2
South Africa 0.2 (7.1) 3.6 2.5 1.3 1.4
Turkey 0.9 1.8 6.1 3.0 3.0 3.2
Source: Oxford Economics; F--S&P Global Ratings forecast. For India, 2019 = FY 2019 / 20, 2020 = FY 2020 / 21, 2021 = FY 2021 / 22, 2022 = FY 2022 / 23, 2023 = FY 2023 / 24

Table 5

CPI Inflation % (Year Average)
2019 2020 2021F 2022F 2023F 2024F
Argentina 53.5 42.0 47.0 42.0 36.0 31.0
Brazil 3.7 3.2 5.3 3.9 3.3 3.2
Chile 2.3 3.0 3.3 3.2 3.1 3.0
Colombia 3.5 2.5 2.8 3.4 3.0 3.0
Mexico 3.6 3.4 3.9 3.5 3.1 3.0
China 2.9 2.5 1.8 2.1 2.2 2.2
India 4.8 6.4 5.0 4.5 4.5 4.6
Indonesia 2.8 2.0 2.8 3.0 3.0 3.1
Malaysia 0.7 (1.1) 2.0 1.9 2.1 2.1
Philippines 2.5 2.6 4.7 2.2 2.2 2.5
Thailand 0.7 (0.8) 1.3 1.1 1.0 1.0
Poland 2.1 3.7 2.9 2.1 2.2 2.2
Russia 4.5 3.3 5.1 3.8 4.0 4.0
Saudi Arabia (1.2) 3.5 2.5 2.3 2.1 2.1
South Africa 4.1 3.3 4.2 4.4 4.4 4.4
Turkey 15.2 12.3 15.0 9.7 9.2 9.2
Source: Oxford Economics; F--S&P Global Ratings forecast. For India, 2019 = FY 2019 / 20, 2020 = FY 2020 / 21, 2021 = FY 2021 / 22, 2022 = FY 2022 / 23, 2023 = FY 2023 / 24

Table 6

Unemployment % (Year Average)
2019 2020 2021F 2022F 2023F 2024F
Argentina 9.8 11.9 11.0 10.0 9.7 9.3
Brazil 11.9 13.5 13.5 12.6 12.1 11.7
Chile 7.2 10.8 9.9 8.6 7.9 7.3
Colombia 10.5 16.1 13.6 12.5 11.6 10.7
Mexico 3.5 4.5 4.4 4.3 4.2 4.1
China 5.2 5.7 5.4 5.1 5.0 4.9
Indonesia 5.1 6.2 6.8 6.3 5.8 5.6
Malaysia 3.3 4.5 4.3 4.0 3.7 3.5
Philippines 5.1 10.4 7.9 6.1 4.8 4.0
Thailand 1.0 1.7 1.8 1.4 1.2 1.1
Poland 3.3 3.3 4.4 3.9 3.9 3.9
Russia 4.6 5.8 5.5 4.8 4.8 4.8
Saudi Arabia 5.7 12.0 10.0 8.0 6.0 6.0
South Africa 28.7 29.2 31.1 30.2 29.9 29.5
Turkey 13.7 13.2 13.0 12.2 11.2 11.0
Source: Oxford Economics; F--S&P Global Ratings forecast

Table 7

Exchange Rates Against The U.S. Dollar (Year Average)
2019 2020 2021F 2022F 2023F 2024F
Argentina 47.97 70.58 105.00 147.50 185.00 210.00
Brazil 3.94 5.16 5.50 5.45 5.48 5.50
Chile 703 792 735 735 740 745
Colombia 3,281 3,693 3,575 3,600 3,625 3,650
Mexico 19.25 21.49 20.75 21.00 21.25 21.75
China 6.91 6.90 6.49 6.44 6.40 6.35
Indonesia 14,138 14,538 14,381 14,598 14,743 14,895
Malaysia 4.14 4.20 4.13 4.16 4.19 4.20
Philippines 51.80 49.62 50.35 51.68 50.05 49.53
Thailand 31.05 31.29 30.65 30.74 30.39 30.08
Poland 3.84 3.90 3.81 3.73 3.71 3.71
Russia 64.74 72.10 73.70 74.00 75.00 75.00
Saudi Arabia 3.75 3.75 3.75 3.75 3.75 3.75
South Africa 14.45 16.46 15.44 16.05 16.35 16.75
Turkey 5.68 7.01 7.78 8.16 8.57 8.91
Source: Oxford Economics; F--S&P Global Ratings forecast.

Table 8

Exchange Rates Against The U.S. Dollar (End Of Period)
2019 2020 2021F 2022F 2023F 2024F
Argentina 59.89 84.15 125.00 170.00 200.00 220.00
Brazil 4.03 5.20 5.45 5.45 5.50 5.50
Chile 745 729 735 735 745 745
Colombia 3,277 3,432 3,600 3,600 3,650 3,650
Mexico 18.93 19.88 21.00 21.00 21.50 22.00
China 6.99 6.52 6.50 6.40 6.40 6.30
India 75.47 74.00 74.50 75.00 75.00 75.00
Indonesia 13,883 14,050 14,500 14,650 14,800 14,950
Malaysia 4.09 4.01 4.14 4.17 4.20 4.20
Philippines 50.74 48.04 51.80 51.00 49.40 49.90
Thailand 30.15 30.04 30.89 30.60 30.30 30.00
Poland 3.80 3.76 3.79 3.72 3.71 3.71
Russia 61.91 73.88 73.00 75.00 75.00 75.00
Saudi Arabia 3.75 3.75 3.75 3.75 3.75 3.75
South Africa 14.04 14.62 15.90 16.20 16.50 17.00
Turkey 5.95 7.44 8.00 8.40 8.82 9.17
Source: Oxford Economics; F--S&P Global Ratings forecast; End of Period - Q4 values. For India, 2019 = FY 2019 / 20, 2020 = FY 2020 / 21, 2021 = FY 2021 / 22, 2022 = FY 2022 / 23, 2023 = FY 2023 / 24

Table 9

Policy Rates % (End of Period)
2019 2020 2021F 2022F 2023F 2024F
Argentina 55.00 38.00 42.00 33.00 30.00 28.00
Brazil 4.50 2.00 4.50 5.00 5.50 5.50
Chile 1.75 0.50 1.00 2.00 2.50 3.00
Colombia 4.25 1.75 2.25 3.25 3.75 4.25
Mexico 7.25 4.25 4.00 5.00 5.50 5.50
India 4.40 4.00 4.25 4.75 5.00 5.25
Indonesia 5.00 3.75 3.50 4.00 4.50 4.50
Malaysia 3.00 1.75 1.75 2.00 2.50 2.50
Philippines 4.00 2.00 2.00 2.25 2.75 3.00
Thailand 1.25 0.50 0.50 0.50 0.50 0.50
Poland 1.50 0.10 0.10 0.10 0.35 1.50
Russia 6.25 4.25 4.75 5.00 5.50 5.50
South Africa 6.50 3.50 4.00 5.00 6.00 6.00
Turkey 11.43 17.03 14.00 10.00 9.50 9.50
Source: Oxford Economics; f--S&P Global Ratings forecast.

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