A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK.
As the scale of the pandemic emerged in March there was at least one thing on which most economists agreed. Emerging-market nations were likely to be far more vulnerable to the economic effects of Covid-19 than richer, developed countries. History had shown that emerging economies suffer more from external shocks, such as natural disasters or disease, than developed economies.
Weak health and welfare infrastructure, high urban population densities and limited scope for debt-financed public spending seemed to put emerging economies at a grave risk. Such vulnerabilities, it was feared, could quickly create a familiar emerging market crisis, one marked by collapsing currencies, debt defaults and runaway inflation.
Some emerging economies have, indeed, suffered badly, with India, Latin America and South Africa likely to see their economies contract by more than 8% this year, not far off the likely shock in the worst-affected Western nations including Italy, Spain and the UK.
Yet there has been no financial crisis in emerging markets such as was seen in Asia in 1997 or Russia in 1998. And the economies of much of Sub-Saharan Africa and Southeast Asia, as well as China, have proved unexpectedly resilient. The picture varies widely, but on average emerging economies are set to do better on growth than developed economies this year.
There can be no final verdict until the pandemic is over. But some things have gone right. Many developing countries have more youthful populations which appear to have contributed to lower fatality rates. Some densely populated lower income countries, including Pakistan and Bangladesh, have suffered proportionately much lower case and death rates than richer countries.
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Policy has been able to respond more effectively to the economic effects of the pandemic than some initially feared. Lower interest rates in the West have enabled emerging market central banks to cut their interest rates and intervene in foreign exchange markets to support currencies. Twenty emerging market central banks have gone further, launching quantitative easing programmes for the first time. That has reduced the cost of borrowing for governments and made it easier for them to finance a higher burden of debt. The IMF and the World Bank have reduced the risk of deep financial crises by extending support and helping broker debt-interest payment holidays for low-income countries.
The biggest positive surprise has been the performance of China, in its speedy containment of the virus and in its swift economic recovery. It is the only major economy expected to grow in 2020, by a forecast 1.9%. It has benefitted from a strong recovery in global demand for healthcare and homeworking-related goods, with domestic growth supported by infrastructure spending and real estate investment.
Southeast Asian economies have also performed relatively well, with Thailand and Vietnam scoring highly on containing the virus and benefitting from close economic links with China and South Korea.
With the exception of South Africa, Sub-Saharan African countries have experienced lower infection rates than many other regions. Their young people (the median age in Africa is 18) appears to have helped. Sub-Saharan African economies as a whole are expected to contract by 3% this year with South Africa’s forecast 8% contraction playing an outsize role in dragging down the overall performance. The economies of Ghana, Ethiopia, Kenya and Tanzania are likely to grow this year.
In the Middle East and North Africa, some countries have registered relatively high case rates, but deaths are much lower than in, for instance, Latin America. The economic picture is closely linked to oil prices. Oil exporting economies in the Middle East and Central Asia are expected to contract by 6%, against a contraction of around 1% in oil-importing economies. Egypt, a small net exporter of oil, is likely to post respectable growth of 3.5% this year.
India has suffered more, partly because of limited healthcare capacity and high urban density. It has the second-highest number of COVID-19 cases after the US, although on a population-adjusted basis cases and deaths rank lower than many rich countries. Sweeping lockdown measures imposed to contain the virus hit activity hard and workers in the large informal sector have struggled to maintain their incomes. The IMF forecasts the Indian economy will shrink by 10.3% this year.
Latin America was disproportionately hit by the pandemic, accounting for more than a quarter of cases and a third of deaths globally despite accounting for just 8% of the world’s population. The high toll of the virus triggered severe lockdown restrictions across the region, which is forecast to contract by over 8% this year.
The health and growth performance of emerging economies this year varies just as widely as in developed economies. There are debates to be had about the accuracy of national health data. And there are plenty of uncertainties ahead. But, faced with such a vast health crisis, what is striking is how well so many emerging economies have fared. That resilience is not guaranteed, but it has provided a positive surprise in an otherwise traumatic year.
For the latest charts and data on health and economics, visit our COVID-19 Economics Monitor: