Will US growth weigh on EM?


The author is Natalya Gurushina
Chief Economist, Emerging Markets Fixed Income

US growth may be strong, but EM trade exposure to the US is mixed and many EMs could benefit from China’s strong pick-up.

A slowdown in the US

The forecast for US GDP growth in Q1 was much weaker than expected, slowing to 1.1% quarter-on-quarter versus an expected 1.9%. Although the publication did not significantly affect market expectations of a US Federal Reserve rate hike next month (88% predicted probability or more), it raised questions about it. potential implications for emerging markets (EM), especially If US growth remains weak due to the tightening of credit conditions.

Mexico Nearshoring

There are different methods of measuring the impact of exogenous shocks on growth – one of them is to consider transportation through trade channels. The chart below shows the share of exports from major EMs to the US as a percentage of their respective GDPs. Mexico stands out on this score, and it remains to be seen whether the near-term event, a long-term investment theme, will help protect the economy (and the Mexican peso) in the coming months.

EM growth and the rise of China

Central European countries and Brazil are significantly less visible through trade channels – the former is more closely connected to Europe (which is why we’ll be watching tomorrow’s Q1 GDP print) and the latter is a more closed economy than Mexico. Several Asian economies There are also significant trade effects on the US, but they are stronger Correlation with China’s rise should help reduce the negative impact The possibility of a growth line coming from the US Stay tuned!

Chart at a Glance: EM Exports to US – Top 10, Bottom 10

Chart at a Glance: EM Exports to US - Top 10, Bottom 10
Source: VanEck Research; Bloomberg LP.

Initially was published VanEck on April 27, 2023.

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PMI – Purchasing Managers’ Index: economic indicators from monthly surveys of private sector companies. A reading above 50 indicates expansion, and a reading below 50 indicates contraction; ISM – PMI Institute of Supply Management: ISM produces an index based on surveys of more than 400 purchasing and supply managers; both in manufacturing and non-manufacturing industries; CPI – Consumer Price Index: index of changes in prices paid by ordinary consumers for retail goods and other goods; PPI – Producer Price Index: a group of indices that measure the average change in sales prices received by producers of domestic goods and services over time; PCE inflation – Price index of personal consumption expenses: A measure of US inflation, which tracks changes in the prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indices and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE) that reflects the market’s 30-day volatility expectations. It is constructed using the implied volatilities of S&P 500 index options.; GBI-EM – JP Morgan Government Bond Index – Emerging Markets: emerging market debt composites that track local currency bonds issued by emerging market governments; EMBI – JP Morgan Emerging Markets Bond Index: JP Morgan’s dollar-denominated sovereign bond index of a selection of emerging market countries; EMBIG is JP Morgan’s global emerging market bond index: monitors aggregate income on external debt instruments traded in emerging markets.

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