Key EM themes 2024 – Light beyond the high rates’ darkness

Emerging market (EM) GDP growth will disappoint next year but EM central banks will reap the dividends of credible policies during the era of supply shocks; we identify five emerging market themes for 2024:

This research report expands on these key themes:

1. EM activity will be below consensus in 2024. The global backdrop is discouraging as some of 2023’s surprisingly positive external drivers will go into reverse. The impact of tight domestic monetary policies will be felt intensely across LatAm and Central European economies, while in non-China Asia, we expect softening semiconductor prices to impact growth.
2. To disinflation and beyond. Team Persistence crushed Team Transitory in the last few years, but historians may judge things differently, with monthly EM inflation in various regions close to averages during the historically benign 2010s. We are more optimistic over medium term, given ahead-of-the-curve central bank policies and successful pushback to minor incursions on their independence.
3. Markets will be surprised by the number of EM central banks that enact and sustain ahead-of-the-Fed pivots. Next year, EM central banks and longer-term interest rates will be released from the chains of the Fed and global markets. We expect more rate cuts than markets have priced in.
4. We expect markets to reward signs of progress back to the pre-Covid historic lows for EM macro volatility. We expect 2024 to be a year in which markets provide some respite for countries where there are clear concerns of debt sustainability – Brazil, Colombia, and South Africa.
5. Many sovereigns will remain stuck in stress, though Ethiopia will be the only default. There is no easy way back for stricken sovereigns, with crisis-resolution mechanisms that have functioned with an occasional sputter in recent decades, now sputtering with only an occasional function.