Emerging market forecasts higher, for now

With second-quarter output surprising to the upside in many emerging markets, Moody’s Investors Service is revising its forecasts higher.

The rating agency reported that major developing markets — such as Brazil, Mexico, India, Indonesia and South Africa — enjoyed surprisingly strong growth in the latest quarter, and data indicates this strength was likely sustained into the third quarter.

As a result, Moody’s has raised its 2023 growth forecast for G20 emerging markets to 4.3% from its previous call of 3.9%.

“Economic growth drivers are converging across a number of G20 [emerging markets], with domestic demand the primary engine in Q2, while net exports mostly exerted a drag,” it said.

While the recent strength boosted this year’s forecasts for emerging markets, Moody’s still expects growth to slow in 2024, as the lagging impact of higher interest rates weighs on demand and investment.

“Growth in Asian G20 [emerging markets] excluding China is also vulnerable to the drag from cumulative monetary policy tightening and muted external demand, but will likely be relatively better than G20 [emerging market] peers,” it said.

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