Our long-run forecasts suggest that China will still be the second largest economy, measured at market exchange rates, in 2050. The most likely scenario is that slowing productivity growth and a shrinking workforce prevent China ever passing the US. But there’s a possibility too that China overtakes around 2030 before dropping behind again as the demographic headwinds to its growth mount.
Despite the rise in EM bond yields over the past week, EM financial conditions remain very loose. Most central banks are likely to look through the accompanying sell-off in currencies (indeed, some may welcome weaker exchange rates). But these moves do make interest rate hikes in Turkey and Brazil more likely and reduce the likelihood of further rate cuts in Mexico and Indonesia.