Emerging markets will face “double whammy” in 2022, Citi says

Emerging markets will face a “double hit“In 2022, caught between limited growth and reduced risk appetite as a result of the monetary tightening, said David Lubin, Citi’s head of emerging markets economics.

“Growth in emerging markets will be affected by a variety of reasons related to weakening growth in external demand, lower global trade activity, and the effects of greater domestic monetary and fiscal adjustment in many countries.”Lubin wrote in a note to clients.

Looking beyond next year, developing nations face a “failed growth model”Caused by an irreversible slowdown in China, the deterioration of demographic factors and a growing economic nationalism, he added Lubin, which could affect the flow of direct foreign investment.

“The likely deterioration of the growth outlook in these countries raises a difficult question: How will emerging markets attract capital inflows?“, he pointed Lubin.

While this is unlikely to provoke a crisis, these factors would sharpen the focus on the domestic debt burden in countries such as Brazil and South Africa, where weak growth and rising interest rates would raise the ratio of public debt to Gross Domestic Product (GDP) to levels that could be cause for concern.

In general, with developed economies struggling to make their supply chains more resilient, developing nations that were close to major powers, such as Mexico, the Asean or Central and Eastern European countries, were in a better position than geographically remote ones such as, for example, South America.