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  • Emerging Markets Debt Daily

    Growth Outlook Is Finally Turning

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    October 15, 2020

    The IMF’s flagship World Economic Outlook shows improvements in the global growth forecast. China inflation is falling, making real yields more attractive.

    The virtual Annual IMF Meetings continue this week, and the IMF’s flagship World Economic Outlook shows some improvements in the global growth forecast, but over the next five years, the COVID crisis could cost an estimated USD28T in output losses. There are plenty of discussions about U.S.-China relations, especially security issues, decoupling and its economic costs, unequal market access and reciprocity and overdependence on China as a supplier of components. Rising debt levels in lower-income nations is a major concern, but we learned this morning that G20extended its debt-relief initiative until April 2021. Finally, European Central Bank (ECB) President Christine Lagarde raised quite a few eyebrows when she asked whether central banks should trust the markets “to correctly price environmental issues”.  

    The only thing you need to know about China’s disinflation is that it pushes real yields higher, making local Fixed Income instruments more attractive. If you expect me to say “I am just kidding”—well, I am not. This is important, which is why we need to pay attention to what’s behind China’s price movements. There are some transitory factors—such a high base effect, but there are other drivers that might prove longer-lasting. Food prices are normalizing, while general consumer demand is still soft. An added bonus is that lower inflation (see chart below) gives authorities more room to stay accommodative—including blanket rate cuts if there are more growth headwinds.

    Indonesia is making moves to restore policy credibility after the recent scares, and these efforts did not go unnoticed by rating agencies.  The Omnibus Law on Job Creation (passed last week) got a nod of approval from Fitch. The agency specifically noted that it significantly enhances the business climate and, over time, should improve Indonesia’s international competitiveness.

    Chart at a Glance: China Disinflation On Track

    Chart at a Glance: China Disinflation On Track

    Source: Bloomberg LP

    1G20 - The G20 (or Group of Twenty) is an international forum for the governments and central bank governors from 19 countries and the European Union (EU).


    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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