Weekly Economic Briefings > Emerging Markets Weekly Economic Briefing

Emerging market (EM) assets have rallied in recent weeks, bolstered by commodity prices rising and expectations of further ECB easing. But this improvement has not been matched by underlying growth dynamics. Certainly in Asia the February manufacturing PMI surveys indicated manufacturing conditions remain soft. Moreover, we now expect US goods import volumes to grow by just 0.4% this year, from 1.5% last month and 3.2% in December, limiting the scope for EM export growth.The sluggish global outlook means we expect the US Fed to wait until at least September before raising rates again. Nevertheless, we still expect the trade-weighted US$ to strengthen by more than 8% this year. Against the backdrop of US rates edging higher, a strong US dollar and fragile domestic fundamentals we see EM currencies staying under pressure. The oil price has edged above $40 this month but we do not see the rally persisting, and expect the oil price to average less than $40 in 2016 and much of 2017.Brazil and Russia are both reliant on commodities and are stuck in deep recessions. Despite the real and rouble rallying temporarily in recent weeks and inflation starting to moderate, we still see no scope for rate cuts in the near term. We expect GDP to stabilise in both countries in 2017 but the risks are to the downside.In India, the Finance Minister adhered to the fiscal consolidation road map in the FY17 budget plans and we expect the RBI to react positively, cutting interest rates in April. However, the budget relies on one-off receipts from disinvestment proceeds and telecom spectrum sales and we think it is too optimistic: we forecast a slightly higher deficit than targeted for FY17.In China, the government's plans for 2016-2020 call for growth of at least 6.5% pa. This is an ambitious growth target that will require substantial policy stimulus and insisting on this target may detract from the more painful reforms and dampen the appetite for reining in credit and reducing excess capacity.