The End of Emerging Markets?

KONFRONTASI -  he story of the coronavirus has so far been told mostly from the perspective of rich countries, but its harshest effects will still likely be felt by the world’s poor. Africa’s cases rose by nearly half in a single week in April, while India’s numbers continue to tick up. Some of the world’s worst outbreaks are taking place in nations such as Brazil, Ecuador, and Turkey. The pandemic’s epicenter could easily return to Asia or move onward to Latin America.


Beyond this public health emergency lies a devastating economic threat. Only bold action from the U.S. Federal Reserve has staved off what would almost certainly have been a rolling series of financial crises for emerging markets in the aftermath of March’s record $83 billion in capital flight. But the pandemic now threatens a more profound shift, bringing an end to the very idea of emerging markets—namely fast-growing poorer countries able to make rapid strides towards development, becoming the darlings of financial investors in the process.

Some hopes remain that these poorer countries might stage some kind of a miraculous collective coronavirus escape. India’s official data, although far from reliable, suggests just over 1,000 deaths so far—a small amount when compared to more than 63,000 in the United States. Southeast Asia has been hit relatively mildly too. A clutch of theories, ranging from early lockdowns to youthful populations and warm weather, have attempted to explain this resilience. Sadly, the low caseload thus far may come down to a mix of little testing and much luck, a phenomenon that is unlikely to last. Even if they manage to avoid the virus, poorer nations will be hard hit by the global economic fallout. The World Food Programme warned recently that more than 30 poorer countries, many of them in Africa, were on the brink of famine, while the International Rescue Committee predicted as many as 1 billion infections in conflict-affected and fragile states.


Even if they manage to avoid the virus, poorer nations will be hard hit by the global economic fallout.


Just as troubling will be the process of long-term pandemic management. Richer countries are only now puzzling through how to restart economic activity while avoiding further waves of infections through mass testing and contact tracing. A task of this complexity will be hard even for countries such as Denmark and Singapore. Nations with limited state capacity and patchy health systems will find it nearly impossible. Further outbreaks are therefore likely, and with them will come a destructive cycle of reopenings and lockdowns.

Even if a public health calamity can somehow be avoided, developing nations must now deal with two further pressing challenges: the short-term threat of recession and financial panic, and then the longer-term problem of sustained weaker economic performance.


The latest International Monetary Fund (IMF) projections suggest emerging markets will contract by 1 percent this year. This looks far better than the 6 percent decline predicted in richer countries. But it almost certainly also disguises the true extent of the slowdown, because the emerging-market group includes China, whose giant economy is set to recover relatively quickly. The picture elsewhere looks dire. Commodity exporters are being hit as global demand collapses. Those reliant on tourism are suffering badly too. Remittances are plunging. Economies in Latin America look especially fragile. The likes of Brazil, Russia, and South Africa—all lauded until recently as part of the superstar BRICS group—will decline by 5 percent or more. Still weaker figures are likely if outbreaks spread, which in turn are likely to undermine more hopeful projections for 2021 from bodies like the IMF.(Jft/FP)