Great Pandemic Debt Divide Seen Across Emerging-Market Metrics

Emerging markets were given a fresh set of growth forecasts from Fitch Ratings this week, further underscoring how the coronavirus pandemic is splitting developing nations up between opportunities and risks.

Fitch raised its economic growth forecast for China, while cutting predictions for South Africa and India. Other examples of the divergence among developing nations can be seen across a wide spectrum of economic and market metrics including projections for government debt levels, returns for bond investors, and the proportion of the population infected by the virus.

The following four charts showcase a range of ways in which the fortunes of emerging economies are differing in the face of the crisis:

The impact of the virus on economic growth was highlighted by the latest GDP outlook revisions by Fitch. The company raised its forecast for China’s growth this year to 2.7% from the June prediction of 1.2%, citing the country’s success in containing the pandemic. It also raised estimates for Brazil, Russia and Turkey, while still foreseeing contractions in all three. On the other hand, Fitch forecast a deeper slump in India, projecting GDP to shrink 10.5% versus its previous estimate of 5%.

75,809 in IndiaMost new cases today

-2% Change in MSCI World Index of global stocks since Wuhan lockdown, Jan. 23

-1.​063 Change in U.S. treasury bond yield since Wuhan lockdown, Jan. 23

5.​3% Global GDP Tracker (annualized), Aug.

Differences can also be seen in expectations for government debt levels. Moody’s Investors Service predicts the ratio of government debt to GDP will climb close to 100% in South Africa next year and almost to the same level for Brazil. At the same time, Saudi Arabia’s is expected to be only around 33%, and Russia’s just over 20%.

Government bond performance has differed widely even as policy makers across developing nations have almost all embarked on unprecedented stimulus. Local-currency debt issued by thePhilippines andRomania has provided bumper returns as central banks cut interest rates. Brazilian and South African bonds have fallen as the pandemic crisis worsened their already weak fiscal health.Turkish bonds have slumped amid concern over inflation and a weakening lira.

While methods for counting virus infections vary widely, there is little doubt case loads are much higher in Latin America than in Asia. The countries with the highest numbers per million of population are currently Chile, Peru and Brazil, based on data collected by Bloomberg. At the other end of the spectrum, Vietnam has the lowest reading of the major EM nations with just 11 cases per million.

— With assistance by Karl Lester M Yap, and Simon Flint

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