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  • Emerging Markets Debt Daily

    China Steps Up Focus On Growth, Party Rule

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 22, 2019

    The Chinese president’s remarks about threats to the economy and the party’s rule drew the market’s attention this morning. Russia posted its largest fiscal surplus since 2008.

    Chinese President Xi Jinping’s remarks about China’s economy at a “study session” for party members echoed the International Monetary Fund’s downward revision of the global gross domestic product (GDP) forecast and concerns about “escalating” risks to growth. The widespread expectation that the past stimulus will boost China’s growth later this year has yet to show up in consensus forecasts, which currently see quarterly growth slowing to 6.25% year-on-year in Q1, 6.15% in Q2 and Q3, and recovering only marginally to 6.2% in Q4. One unusual aspect of President Xi’s speech was his warning about “sharp and serious” threats to the Communist Party’s long-term rule, stemming in part from corruption.

    Russia continues to post some seriously impressive macro numbers. The 2018 fiscal accounts released this morning showed that the government’s annual surplus reached 2.7% of GDP – the highest since 2008. With Russia’s 2018 current account surplus projected at 6.4% of GDP and the total external debt falling to a 10-year low (USD64.4B), the government faces very low issuance pressure. It remains to be seen, however, whether the macro buffers would be strong enough to sustain the impact of potential new sanctions that may affect the ability of state banks to process payments in U.S. dollars (in the worst-case scenario).

    South Africa’s leading indicator does not bode particularly well for the near-term growth outlook. The indicator edged lower in November (to 105.5), giving more gravitas to the pessimistic consensus growth forecast of only 1.5% for 2019. The main risk stemming from the government’s inability to boost growth is its ongoing negative impact on fiscal accounts and the debt/GDP ratio.



    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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