COVID-19 spread in emerging markets brings in new round of shocks to global economy

Source:Global Times Published: 2020/5/5 18:58:40

Illustration: Luo Xuan/GT

As the coronavirus pandemic is seeing an accelerating situation in emerging markets, a third round of hits to the global economy is shaping up and emerging market economies will encounter tougher challenges.

Although the spread of the COVID-19 has seen flattened curves in Europe and the US, with countries and regions trying to promote economic recoveries, the pandemic is now entering a new phase along the path from Eastern Asia to Europe and North America, and then to Asia, Africa and Latin America.

Unlike developed countries, which have relatively complete and balanced economic systems, emerging market economies are not very sound in terms of an economic ecology and mechanism, and would suffer more damage. The spreading will, at the same time, form a new round of shocks to the global economy.

According to data from the Africa CDC on Tuesday, the total confirmed infections in Africa had reached 47,118 with 1,843 deaths. In Latin America, the number of confirmed cases in Brazil has exceeded 100,000, according to data from the Johns Hopkins University on Tuesday. Meanwhile, the virus is still spreading in Southeastern Asia as well, including India, Singapore and Indonesia.

In fact, some emerging markets have already seen economic slowdowns due to long-term economic structural problems. The pandemic has weighed on the contractions and may even draw them into crisis. The previous two rounds of outbreaks in China, Europe and the US have already brought a negative impact on the emerging markets with turbulence in financial and oil markets' and the currencies in these economies have seen different levels of depreciations.

Under the current phase of the pandemic, the emerging markets may see wider impact on the economy and society due to relatively weak medical systems and large populations. The countries may even see economic stagnations amid quarantines and lockdowns as they have a higher dependency on the global market, especially for energy and export-oriented economies. For instance, Brazil and South Africa have a relatively higher proportion of service sectors, and Thailand highly depends on the tourism industry, while Saudi Arabia and Russia rely more on the oil sector.

The further challenges brought about by the pandemic will show in aspects including intensifying the imbalance of oil demand and supply, and turbulence in goods prices. During the economic contraction, the demand side of the global market has seen turbulent contractions, and countries exporting raw materials or resources are under mounting pressure.

Also, the financial and trade markets of emerging markets will take a hit from depreciating currencies. As external demand weakens amid the pandemic, the deficit pressure of balance of payments in emerging market economies will increase further, which would in turn accelerate the currency depreciation and may even cause a monetary crisis.

Furthermore, the risk of debt default has risen sharply. The turbulence of financial markets and the rise of financing cost may further trigger a series of debt defaults, or even lead to a regional debt crisis.

As a result, emerging markets would be hit harder, lose more, and even generate a chain reaction under the new phase of the pandemic.

Emerging markets and developing countries contributed 47.8 percent to the global economic growth in 2018, and if the emerging economies slide into a crisis, the global economy will take a longer period of time to resume.

The article was compiled based on a report by Beijing-based private strategic think tank Anbound.


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