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Emerging Markets Monthly Highlights: Deeper Economic Contraction, Higher Leverage, Slower Recovery

July 15, 2020

S&P Global Ratings now projects a deeper GDP decline in 2020 for most emerging market (EM) economies, mostly due to the worsening pandemic and a steeper fall in exports. Our forecast is for the average EM GDP (excluding China) to contract 4.7% this year and grow 5.9% in 2021. Better financial conditions and a gradual economic recovery in key trading partners are supporting the return to growth in EMs, but investor sentiment remains fragile. Risks remain firmly on the downside, the deep economic shock in 2020 will spike debt levels across governments, corporations, and households in EMs, some of which were suffering from already high debt burdens prior to the pandemic. Lockdown fatigue driven by mounting political pressures and economic costs could lead to poor policy choices. The efforts governments have taken to tame the pandemic and support their economies will pressure their fiscal positions and will combine with risks that were present prior to the crisis.

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