EM Daily:Emerging Markets Outlook for 2018-Synchronized Growth

Our outlook for 2018 is brighter for emerging economies and less so for emergingmarkets. A synchronized global growth is supportive of EM, but narrowinggaps and tightening liquidity conditions globally pose the main headwinds foremerging markets.

    We expect EM growth to remain supportive, with Asia’s cycle most advanced andLatAm playing catch-up. In Asia, a number of CBs are already hiking. LatAm’smacro outlook will improve the most, in our view - growth is picking up whileCB’s still have room to ease.

    In Asia, with the output gap closed, risks to inflation have tilted to the upside.

    As the region’s monetary policy shifts towards explicit tightening, although muchless than the Fed, its fiscal policy is likely to turn expansionary, with the exceptionof China.

    In a number of countries CBs still have room to cut or maintain supportive stanceeven as growth recovers. We see Brazil, Russia, Egypt, cutting rates into stronger2018 growth.

    We expect EM specifics to play a more important role in 2018, with a strongfocus on politics. A heavy political calendar can bring unproven or off-centergovernment in Brazil and Mexico. In South Africa, Russia and Turkey politicswill be as important as macro. Also to monitor are geo-politics in South Korea,elections cycles in India, Indonesia, and Colombia. Finally, event risks are highestin Venezuela on possibly the biggest debt default in EM history