TalkingEconomics: Emerging markets forecast update - diverging fortunes

We have downgraded most of the BRIC economies as idiosyncratic stories deteriorate. China escapes unscathed, with a slowdown still expected later this year after a strong first quarter, as tighter policy bites.

2 Juni 2017

Craig Botham

Craig Botham


We downgrade growth for most of the BRIC economies, with the exception of China. We expect lower inflation than last quarter thanks to softer commodity prices, lower growth and surprisingly low inflation in the first quarter.

China: finally deleveraging?

Q1 GDP growth beat expectations but while the services sector is still the fastest growing part of the economy, heavy industry seemed to propel the upside surprise in Q1, a worrying return to a reliance on “Old China”. Efforts to contain leverage have escalated this year and there are definitely some tentative signs of deleveraging, but credit is still outgrowing GDP. There is scope for looser fiscal policy to compensate for the tighter monetary stance, although it increasingly seems that this burden rests with central government. We forecast GDP growth of 6.6% in 2017 (no change from last forecast) and inflation of 2% (versus 2.5% previously).

Brazil: thrown back into turmoil

Following reports that President Temer has also been caught up in the Brazilian corruption saga, an indirect election (in which Congress selects a new president to serve the remainder of this term) seems the most likely outcome. This will, however, be negative for reform progress while the tentative economic recovery that had been seen since President Rousseff’s removal seems at risk. Consequently, we downgrade growth expectations (to 0.2% from 0.7% in 2017), but also slightly increase our expectations for policy easing.

Russia: oil to weigh on growth

Although we still expect growth to accelerate from current levels, we think that a weaker oil price will weigh on activity compared to our last forecast. As such, we expect GDP growth of 1.1% in 2017 (compared to 1.6% previously). We anticipate that rates will end the year at 8.25% as frontloading of the cycle continues. Our expectation for 2018 rates remains unchanged at 8%. On the political front, wary optimism is building once again on the prospect for reforms but past experience suggests investors should not get too carried away.

India: impact of tax changes uncertain

After many, many years, India is on the verge of implementing the Goods and Services Tax (GST). The move is likely to be positive for growth in the medium- to long term (but disruptive in the short term) and to lower rather than raise inflation (according to work by HSBC). We expect rates to stay on hold, though continued inflation improvements would generate greater pressure for rate cuts.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.