The rating agency S&P Global cut its emerging market growth forecasts on Monday, predicting a 4.7 per cent slump on average this year due to the coronavirus, and warned that all countries would be left with permanent scars.
The firm said the downward GDP revisions mostly reflected the fact that the pandemic was worsening in many emerging markets and set to cause a larger hit to foreign trade than foreseen in April, when S&P predicted a 1.8 per cent contraction.
“We project the average EM GDP (excluding China) to decline by 4.7 per cent this year and to grow 5.9 per cent in 2021. Risks remain mostly on the downside and tied to pandemic developments,” S&P said in a report.
All emerging economies would suffer lasting contractions from the pandemic. It said the gap relative to the pre-coronavirus GDP path could be as large as 11 per cent of output in India, 6 per cent-7 per cent in most of Latin America and South Africa, 3 per cent-4 per cent in most of Emerging Europe, and 2 per cent in Malaysia and Indonesia.
Out of a total of nearly 1,800 negative ratings actions – either downgrades or rating ‘outlook’ cuts – taken by S&P between January and June, 420 were in emerging markets.
Latin America’s forecasts saw the biggest cut. The region is now expected to suffer a 7.4 per cent GDP slump this year, including a 7 per cent drop in its largest economy, Brazil. The region has seen nearly 70 per cent of its credit ratings hit by the virus, and is also expected to produce one of the weakest recoveries next year.
In Asia, India’s economy is seen contracting 5 per cent this fiscal year, starting April 1, due to difficulties in containing the virus, an anaemic policy response and underlying vulnerabilities, especially across the financial sector.
China, in contrast, is still expected to grow a modest 1.2 per cent this year and a robust 7 per cent next, helped by strong stimulus spending, resilience in electronics manufacturing, and a gradual recovery in service industries.