Coronavirus Watch: EMs could be 2021’s big surprise
We expect the global economy to exit its recent soft patch in Q2 as falling Covid cases and ongoing vaccine rollouts allow authorities to ease restrictions. Economies with especially tight curbs on activity may gain the most, so advanced economies – particularly in Europe – could be the best performers by the middle of the year. But emerging markets may supply the biggest surprise.
Some EMs such as India have seen steady and persistent declines in Covid cases even as restrictions have been loosened. Antibody tests in India and South African suggest falling rates might be explained by high levels of immunity from prior infections – perhaps 50% or more in some areas.
If the positive trends continue, some EMs may benefit from higher commodity prices and stronger AE demand mid-year as well as faster return to domestic normality due to high levels of immunity. So beyond Q2, these economies might not only be closer to herd immunity than their AE counterparts, they may also be at less risk from potential production issues that slow vaccine rollouts.