The economic and credit outlook is likely to remain challenging for emerging-market (EM) economies in 2023, reflecting a weak global growth outlook, high inflation, rising funding costs, volatile financial conditions, pressures on public finances and, in many cases, heightened political risks, says Fitch Ratings in a new report.
Market sentiment has improved somewhat in recent months, but recessions in the US and eurozone still lie ahead. Although the pace of Fed policy interest rate hikes has now slowed, rates are still rising, and Fitch does not expect the Fed to pivot to a loosening in monetary policy this year.
EM sovereign Positive and Negative Outlooks are balanced, after completing a post-pandemic recovery from a net balance of -33 in August 2020. However, this partly reflects net downgrades of 19 in 2022, the second-worst year on record after 2020. Moreover, four Fitch-rated EMs are in default and a further nine have ratings of ‘CCC+’ or below (on which we do not assign Outlooks). Further defaults are likely in 2023.
The report covers our responses to topical questions from investors on China, Malaysia, Indonesia, Brazil, Peru, Bolivia, Turkiye, Bulgaria, Serbia, Egypt, Jordan and external debt service in Sub-Saharan Africa.