The outlook for emerging markets is looking better than it did just a few weeks ago. Most obviously, China’s shift to living with COVID means that its economy will rebound far sooner than we had previously thought. That will provide a lift to countries that were dependent on Chinese tourists, such as Hong Kong and Thailand, and EM commodity producers. We now expect EM GDP to expand by 3.5% this year and outperform DMs by the greatest distance since 2013. But for many individual countries, 2023 still looks very challenging as they face multiple headwinds ranging from high borrowing costs to tight fiscal policy and weakness in key DM trading partners, which will cause growth to slow.
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