Global growth is forecast to stagnate in 2023, at 3.6% again, ie a lower growth rate compared to the previous forecast (3.8%), and from a lower base.
Faster and accelerating growth is forecast in EM across 2022 and 2023 (3.8% and 4.4%, respectively) compared to DM (3.3% and 2.4%), but that is little comfort given the cuts across most individual EM countries.
Of course, updates to the IMF World Economic Outlook tend to confirm what we already know at a global and country level, understandable given the scale of the forecasting exercise, but it is still worth sifting through the country-specific data to see where the biggest changes are.
Our equity strategy view remains that, in the context of uneven, stuttering growth across EM, and a greater emphasis on country, sector and stock selection, a mix of tech, commodities, tourism, and manufacturing exposure is warranted — filtered by valuation that is cheap relative to history and ruling out dysfunctional currency and, obviously, sanctioned markets.
In general, across all countries, 2022 downgrades are more common than upgrades.
Growth upgrades — There are significant 2022 growth forecast upgrades in several EM commodity exporters, excluding Russia and Ukraine; eg GCC oil exporters such as Kuwait, Oman, and Saudi see a 2-3pp increase, Nigeria a 70bp increase, and Brazil a 50bp increase.
Growth downgrades — Russia growth forecast is cut 11pp and 4pp for 2022 and 2023, respectively. Chile and Peru see growth for both years cut by 1pp or more, presenting an exception to the wider upgrade for commodity exporters. Most countries that have manufacturing and tourism exposure, eg Thailand and Vietnam, are commodity importers, eg India, or are situated in East Europe, eg Poland and Romania, have been downgraded.
Inflation stress — Most EM country inflation forecasts are higher, driven by higher commodity prices, eg the US$pb Brent oil price assumption has almost doubled for 2022 from 66 to 111. The largest increases are seen where large currency devaluation has occurred or where a dysfunctional currency regime prevails, eg Russia, Sri Lanka, Turkey, and Zimbabwe.