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IIF cuts emerging market growth forecasts for 2019

The Institute of International Finance has lowered its forecasts for emerging market growth next year on trade tensions and high fuel prices

Introduction

The Institute of International Finance (IIF) expects emerging Asia to grow at 6% in 2019.

The investor association has reduced its forecasts for Asian growth by 0.3 percentage points since April because of rising interest rates, a slowing Chinese economy, higher oil prices and protracted US-China trade tensions.

IIF has also cut Latin America’s 2019 growth estimates by 0.8 percentage points to 1.7% on the back of economic crises in Argentina and Brazil.

Meanwhile, the investor body expects growth in emerging Europe to fall by 1.3 percentage points to 1.9% next year, with Turkish growth set to fall to -0.9% in 2019.

Overall, IIF estimates emerging markets (EMs) to grow at 4.6% in 2019.

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Introduction

The Institute of International Finance (IIF) expects emerging Asia to grow at 6% in 2019.

The investor association has reduced its forecasts for Asian growth by 0.3 percentage points since April because of rising interest rates, a slowing Chinese economy, higher oil prices and protracted US-China trade tensions.

IIF has also cut Latin America’s 2019 growth estimates by 0.8 percentage points to 1.7% on the back of economic crises in Argentina and Brazil.

Meanwhile, the investor body expects growth in emerging Europe to fall by 1.3 percentage points to 1.9% next year, with Turkish growth set to fall to -0.9% in 2019.

Overall, IIF estimates emerging markets (EMs) to grow at 4.6% in 2019.

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China

IIF has downgraded China’s growth to 6.4% for 2019, which is 0.2 percentage points lower than its April projections, on the potential for further escalation in trade tensions and yuan depreciation.

The impact of tariffs is already starting to trickle through to purchasing managers’ indexes, with new export orders in September dropping by 1.4 points and the imports sub-index falling by 0.6.

Moreover, tightening domestic policies around shadow banking and weakening business activity are also affecting the Chinese economy.

Total credit growth, for instance, dropped to a record low of 10.1% in August and wealth management products, the main funding source of shadow banks, stopped growing altogether in the first half of 2018.

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India

Real GDP in India will slow to 7.2% in 2019 from 8.2% in the second quarter of 2018, according to IIF forecasts.

Among the headwinds is electoral uncertainty and a vulnerable external position, which is expected to weaken as the oil-importing country faces higher fuel prices.

‘We project reserves, excluding gold, to decline by about $35 billion to $368 billion in FY2018/19, the steepest fall since FY2008/09, and the rupee to depreciate further to around 74 per US dollar by end-December 2018,’ the report read.

IIF projects two rate hikes by the Reserve Bank of India in 2019 to manage rising inflation, which is expected to climb to 4.7%.

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Saudi Arabia

IIF expects Saudi Arabia’s gross domestic product (GDP) to grow at 2.6% next year, up from 2.2% in 2018.

‘Higher oil prices, the peg to the US dollar, large public foreign assets, and low public debt make Saudi Arabia less prone to EM contagion,’ the report stated.

According to IIF estimates, higher oil prices, combined with additional non-oil government revenue and cuts in fuel subsidies, should more than offset the 20% increase in government spending and narrow the fiscal deficit to 4.4% of GDP in 2018.

IIF also expects stronger participation by Saudi Arabia’s sovereign entities in international debt markets after the Public Investment Fund successfully raised $11 billion.

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