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    IMF Meetings – A Risk of Multi-Speed Recovery

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    April 09, 2021

    The longer-term implications of the multi-speed recovery is a major theme at the IMF meetings. Discussions about inflation and bond vigilantism also feature prominently, which explains interest in today’s inflation releases in EM.

    I made a funny mistake in my daily blog summary yesterday, referring to the IMF Spring Meetings as “Sprint” meetings. Well, this is not that far from the truth. Anyway, it’s our last day at the IMF, and one topic that features prominently is the “multi-speed” recovery. The risk is that it can lead to the divergence of “economic fortunes” between a small group of countries with a very strong post-pandemic rebound (such as China and the U.S.) and poorer countries that are falling behind. There is also a lot of talk about the climate agenda, with the IMF unveiling its Climate Change Indicators Dashboard. Digitalization remains a priority in many emerging markets (EM), as they are trying to boost revenue collection and improve the structure of government spending. There are calls for more trade openness—in particular among African countries, which can use it as a vehicle to diversify their economies away from oil. Stay tuned for our final report!

    Discussions about inflation are also front and center, especially in the context of bond vigilantism (both in developed markets (DM) and EM)—so today’s inflation releases in EM warrant attention. Brazil’s inflation accelerated big time in March (to 6.1% year-on-year—see chart below), which explains why the local swap curve continues to price in more tightening in May (~90bps) than official guidance (75bps). Turkey’s 12-month ahead inflation expectations now exceed 11%, keeping both the central bank and market participants on their toes. Finally, China’s producer prices surged from 1.7% year-on-year in February to 4.4% in March, but many commentators believe that the impact on consumer price inflation (still very benign at 0.4% year-on-year) is likely to be limited.

    Many EMs contemplate policy tightening, but Poland is still in a different universe. The central bank’s governor, Adam Glapinski, reiterated today that they stay ready to ease again if needed and that it is too early to even discuss rate hikes. Importantly, the central bank continues to believe that the recent spike in inflation pressures is outside its control and transitory. The market sees the situation differently, though, pricing in the first hike within the next 12 months.

    Charts at a Glance: Brazil – Prices Up, Confidence Down?


    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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  • Authored by

    Natalia Gurushina
    Chief Economist, Emerging Markets Fixed Income Strategy

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