Despite three unprecedented global shocks, much of EM is still standing largely due to excess private savings as in DM
◼ These shocks are fading and with China rebounding strongly while EM is set to slow, 2023 growth is likely to be better than expected
◼ EM disinflation will be strong in the coming months, but core is turning sticky
◼ US growth and employment have surprised on the upside and core disinflation has been slow
◼ US growth is expected to slow into a mild recession with the Fed on extended pause soon
◼ The risk of near-term recession has ebbed despite banking stress; while that of Fed retightening after the pause (likely in 2024) has risen ◼The timing of an eventual US (or global) recession is uncertain and in the modal scenario (modest US recession), EM growth and assets are likely to do better than feared at the start of the year ◼ Fed pause, disinflation, benign USD, and better global growth open space for EM CBs to ease. – Latam to lead the pack, followed by CEE, with EM Asia going into prolonged pause. – EM CBs could be tempted to cut more and sooner than we currently forecast; this could raise external vulnerabilities if the Fed is forced to resume hiking, or the dollar strengthens.
- J.P. Morgan
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