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Taking stock of the performance and prospects in EM EMEA

EHSAN KHOMAN
Head of Commodities, ESG and
Emerging Markets Research –
EMEA
DIFC Branch – Dubai
T:+971 (4)387 5033
E: ehsan.khoman@ae.mufg.jp

RAMYA RS
Analyst
DIFC Branch – Dubai
T:+971 (4)387 5031
E: ramya.rs@ae.mufg.jp

LEE HARDMAN
Senior Currency Analyst
Global Markets Research
Global Markets Division for EMEA
T: +44(0)20 577 1968
E: lee.hardman@uk.mufg.jp

PAUL FAWDRY
Head of Emerging Markets FX Desk
Emerging Markets Trading Desk
T: +44(0)20 577 1804
E: paul.fawdry@uk.mufg.jp 

MUFG Bank, Ltd.
A member of MUFG, a global financial group

Macro focus

Economic growth in EM EMEA has remained resilient this year in the face of acute headwinds from tight financial conditions, geopolitical conflict and, for some vulnerable parts of the region, severe challenges in accessing external funding. As we approach the end of 2023, sequential growth has risen to an above-trend pace, and we expect annual growth to accelerate in 2024. Having said that, this relatively benign aggregate picture masks significant cross-country heterogeneity (see here). We anticipate recent strong growth performance (Russia and Turkey) to begin to slow and the current growth laggards (South Africa and both the MENA and CEE regions) set to accelerate. Meanwhile, the rise in US yields and ongoing strength of the US dollar signal that financing conditions will remain tight for high yielding EM credits (notably the SSA region).

 

FX views

EM FX continued to benefit amidst broad-based USD sell-off. After peaking in the first week of October, the dollar index has since declined. The slowing US inflation is encouraging speculation over earlier & deeper Fed cuts next year.

 

Trading views

Last week felt like a trend reversal as people look to year head trades. As always in EM the risk is to overinvest over underinvesting so people will be racing to get involved.

 

Week in review

Romania Q3 2023 GDP came in lower than our and consensus expectations, while Poland’s Q3 2023 GDP data pointed to a recovery with a 0.4% y/y growth. Meanwhile, October inflation data for Israel eased to 3.7% y/y.

 

Week ahead

We see the SARB on hold next week, in contrast to the NBH, who we see delivering a second 75bp rate cut. The CBRT should continue tightening but with a smaller 300bp hike.

 

Forecasts at a glance

In a world of tightening global financial conditions and questions about the liquidity implications of the now-finalised US debt ceiling, we see a degree of macro risks for EM economies in H2 2023, with external funding requirements the central concern. We expect EM growth to trough this year but remain below potential in the 2024 recovery. The silver lining is that subdued growth should cap inflation, facilitating monetary policy easing where external balances allow.

 

Core indicators

EM flows during the week ending 17 November, turned positive, with both EM equities (USD5.0bn) and bonds receiving inflows (USD0.7bn).