4 months ago • 2 mins
When the inflation alarm bells started blaring in 2021, some countries opted not to wait around for the burn. They knew the drill. These fast-acting policymakers, mostly from emerging market economies, upped their interest rates – and didn’t waste any time doing it. Used to managing tricky macro environments, they were hiking six to 12 months ahead of their developed economy pals. And, now, despite having raised rates by an eye-watering average of nine percentage points (roughly double the US, UK, and eurozone), they appear to be on track to avoid an economic disaster.
These countries seem to have wrestled the inflation monster into submission. Core inflation has more than halved in these places, dropping from an average of 12% in 2022 to about 6% now – and that rate of descent has been accelerating. And their economies have generally remained more robust than expected in the process, with only two of those early hikers now facing a potential recession. The rest are seeing their economies continue to grow, their unemployment rates continue to fall, and their current activity indicators (CAI, in the chart) and manufacturing activity (PMI) remain robust.
Two things spring from this. Firstly, these countries are looking at a rosier future. With inflation easing, along with recession fears, their central banks might be preparing to cut interest rates, which would inject more vim into economic growth. Secondly, they could become a ray of hope for the world’s developed economies. With similar factors at play (but, let’s say, delayed because of when they started hiking rates) maybe they’re heading for a soft landing too.
It’s too soon to pop any Champagne here, given the risks of an inflation encore or a steeper slowdown in global growth. But for now, let's raise a toast to celebrate the resilience of these emerging markets. Here’s hoping this momentum continues and the economic terrain ahead remains steady for us all.
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