According to QNB’s weekly commentary, emerging markets (EM) have underperformed advanced economies due to low vaccination rates, supply chain constraints, and less accommodative monetary and fiscal policies. However, the bank predicts that EM outperformance is about to return in 2023, with growth accelerating to 4.2 percent this year from 3.7 percent in 2022, while advanced economies are set to slow down.
The bank attributes this prediction to more robust macroeconomic fundamentals in most EM countries than advanced economies and the expected acceleration of Chinese growth. Net commodity exporters that run current account surpluses are particularly well-positioned to benefit from the more positive environment.
After a challenging period in 2020 and early 2021, the global economy has seen a strong rebound, led by the United States and other advanced economies. However, EM countries have lagged due to various factors, including lower vaccination rates and supply chain disruptions that have hampered their economic recoveries.
But the outlook for EM economies is improving, with many countries progressing in their vaccination campaigns and implementing policies to support economic growth. Moreover, many EM countries have more robust macroeconomic fundamentals than their advanced economy counterparts, including lower debt-to-GDP ratios, lower inflation, and higher foreign exchange reserves.
In addition, China’s economy is expected to continue to be a key driver of global growth, with QNB predicting that the country’s GDP will grow by 5.7 percent in 2023. This will spill over to other EM economies, particularly those with close trade and investment links with China.
Finally, net commodity exporters that run current account surpluses are particularly well-positioned to benefit from the more positive environment. As demand for commodities, particularly from China, continues to increase, these countries will likely see a boost in their export earnings and overall economic performance.
In conclusion, QNB’s commentary suggests that the outlook for EM economies is positive, with growth expected to accelerate in 2023. While challenges remain, including ongoing pandemic-related issues and supply chain disruptions, the bank is optimistic about the prospects for many EM countries, particularly those with strong macroeconomic fundamentals and close ties to China. Investors and businesses should take note of these trends and consider the potential opportunities that may arise in EM markets in the coming year.
It is worth noting that the predictions made by QNB’s weekly commentary are based on several assumptions and factors that could change over time. For instance, the global pandemic continues to pose a significant risk to the global economy, and new variants or outbreaks could derail the progress made by many EM economies.
In addition, geopolitical risks, such as tensions between significant economies or conflicts in certain regions, could also impact economic growth and stability in EM countries. Furthermore, the current supply chain disruptions and inflationary pressures could also hurt EM economies, particularly those that rely heavily on exports.
Despite these challenges, there are reasons to be optimistic about the outlook for EM economies. Many countries have shown resilience and adaptability in the face of adversity and have implemented policies and reforms that have strengthened their economies and made them more attractive to investors. For example, many countries have invested in digital infrastructure and technology, which has allowed them to improve their competitiveness and productivity.
Moreover, the ongoing shift towards renewable energy and sustainability could also present opportunities for many EM countries, particularly those with significant natural resources and the potential to develop renewable energy industries. This could help to reduce their dependence on fossil fuels and position them as leaders in the transition towards a greener global economy.
In conclusion, while EM economies face risks and challenges, the outlook for many countries is positive, with growth expected to accelerate in 2023. Investors and businesses should pay attention to these trends and consider the potential opportunities that may arise in EM markets in the coming year. As always, it is essential to approach investments cautiously and conduct thorough research before making any decisions.
