Have emerging markets reached a nadir?

Ahead of tomorrow’s Brazilian GDP growth figures, Schroders’ Emerging Markets Economist, Craig Botham comments on Brazil’s current economic problems and gives his outlook for the rest of the BRIC economies.

There are relatively few changes to our BRIC outlook this quarter, though where we have made changes they are typically negative. Events are playing out in China largely in line with our expectations, and state intervention is helping shield the economy from oil price slumps.

A similar story holds for India, though we do see some deflationary impact there from cheaper oil. The more substantial changes come in Russia and particularly Brazil, with economic data and the policy environment deteriorating at a rapid clip in the latter.

We continue to expect a slowdown this year with GDP at 6.3% in 2016 and 6.2% in 2017. We make no change to our inflation numbers given the combination of limited pass-through to the economy from lower oil prices and further depreciation in the yuan.

Inflation is forecast at 1.9% in 2016 and 2.1% in 2017. The 50bps cut to the reserve requirement ratio on 29 February will likely be followed by a further 200bps of cuts this year, alongside interest rate cuts.

GDP is expected to fall by 2.8% in 2016. It is too soon to call a turning point, but we do expect positive growth in 2017, and think that at some point this year the worst will be over for Brazil’s economy.

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