In addition, further political support in emerging markets will probably be less. The extensive monetary and financial policy measures in 2020 would have caused key interest rates to fall to historic lows and the national debt to rise massively.
Added to this is rising headline inflation, although this should be a temporary phenomenon. “Politicians with a lower level of credibility could find themselves forced to gradually tighten monetary policy in order to maintain an adequate real interest rate buffer, anchor inflation expectations and prevent currency devaluation and massive capital outflows,” explains Davies. Those affected would face a difficult balancing act in the coming months.
As a result, Columbia Threadneedle expects emerging markets to diverge more in the future. Davies: “The countries that entered the crisis with weaker fundamentals will probably also be the ones that will come under further pressure in the event of a longer-lasting corona pandemic.”
A look at the economic forecasts for emerging markets shows that the experts are rather cautious for Mexico and Turkey, among others. For example, they expect gross domestic product to grow by 3.5 percent in Mexico in 2021 – well below the market consensus of 4.7 percent. The expectations for Turkey are also subdued: There the fund company expects 3.25 percent growth in 2021, while the consensus assumes 5.0 percent.
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