EM ready for a comeback, but volatility will remain high

At the time when EMs are navigating towards a healthier environment (Covid cases numbers shifting downward and vaccination rollouts speeding up), China’s selfinduced deceleration is now looming.

Recently, financial markets have had to digest some mixed signals from the US economy (August jobs report and retail sales, latest CPI).

Evergrande: not a systemic risk, but a wake-up call in an over-indebted world. Over the past days, financial markets have been shaken by the Evergrande saga – China’s second largest property developer – which is facing difficulties in servicing its huge debt pile.

All eyes are on the recent tightening of regulations for tech and education companies by Beijing and on possible new measures that could affect other sectors.

The latest Census results suggest China’s population is aging faster than expected, prompting Beijing to relax birth restriction and move to a threechild policy. Recognizing the challenges to reverse low fertility, we expect China to rely more on the productivity driver for growth in the long run.

Profound changes in the international arena are underway. Together the EU, China and the United States are the three largest economies in the world. Whereas, previously, economic and geopolitical issues were treated separately, it is increasingly clear that the United States and China are using their economic power for geopolitical purposes. Such geopolitical leadership has economic implications.

The global economy should rebound strongly this year from its worst economic slump since the 1930s. However, the growth pattern is expected to be uneven across advanced and emerging economies, hinging critically on the virus cycle and the success of vaccine campaigns.