End ng 2018

Despite the slowdown, EM central banks continued to tighten monetary policy in late-2018, and further hikes lie in store over the next six months or so as price pressures continue to build. EM economic growth continued to slow at the start of Q4. Aggregate EM GDP growth weakened from 4.7 percent y/y in Q2 to 4.2 percent y/y in Q3 – the slowest pace since Q1 2017. And our GDP Tracker, based on more timely activity data, suggests that EM growth edged down to about

4.0 percent y/y in October. This was driven by Emerging Europe. While the economic recovery in Russia regained momentum in October, the sharp downturn in Turkey’s economy continued following August’s currency crisis. The slowdown in Emerging Europe more than offset a slight improvement in growth in Latin America and Emerging Asia. In Asia, our China Activity Proxy rose from 5.5 percent y/y in September to 5.6 percent y/y in October on the back of stronger construction activity, but the available data for November were slightly weaker, suggesting that the economy lost some momentum. Looking ahead, we think that GDP growth in most of the emerging world will slow next year. Global demand is likely to weaken and domestic financial conditions will probably tighten in most EMs. Our GDP growth forecasts for next year are below consensus in most EMs that we cover. There are only a few exceptions, including Mexico and Russia, where we expect growth to surprise on the upside in 2019. More timely data suggest that the deterioration in consumer conditions in Turkey may have bottomed out – car sales were down 39 percent y/y in November, versus a drop of over 76 percent y/y in October.

(December 14)