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2019 Emerging Markets Roadmap Summary

Core Content Overview

This report outlines key events and economic outlooks for Emerging Markets (EM) in 2019, focusing on political developments, fiscal policies, and macroeconomic trends across Latin America (LATAM), Central and Eastern Europe, the Middle East and Africa (CEEMEA), and Emerging Asia. It also compares BNP Paribas' forecasts with the market consensus and highlights critical questions for the year.

Key Regions and Their Outlooks

1. LATAM: Fiscal Vulnerabilities

• Brazil:
  • Social security reform is expected to be approved, possibly by mid-2019, to address fiscal vulnerabilities.
  • A new administration is likely to boost business confidence with a pro-market and pro-reforms platform.
  • Failure to implement comprehensive social security reform could derail the economic recovery.
• Mexico:
  • The government is set to submit its first draft budget for 2020 by August.
  • New spending projects may make budget targets unattainable.
• Colombia:
  • Expected to recover GDP growth close to potential, with inflation within target bands.
  • Corporate tax cuts and capital goods import exemptions should drive private activity.
  • Greater legal certainty and planned capex by Ecopetrol are expected to benefit the oil and mining sectors.
• Argentina:
  • President Macri faces a difficult re-election campaign due to recession and high inflation.
  • Primaries in September may indicate the election outcome on 27 October.
  • The opposition is fragmented, with Cristina Kirchner possibly disadvantaged.

2. CEEMEA: Bumper Election Year

• Turkey:
  • President Erdogan may push forward with constitutional amendments if his party wins local elections.
  • The local elections are unusually important, potentially strengthening or weakening his rule.
  • Headline inflation remains high, and the economy is undergoing adjustment.
• Poland:
  • Opinion polls suggest the ruling party will remain in power.
  • A strong economic performance may reward the right-wing PiS party in parliamentary elections.
• South Africa:
  • President Ramaphosa's party, ANC, is likely to win the general election in May.
  • However, if the ANC does not secure a majority, it may need to form coalitions with opposition parties.
  • Policy uncertainty and external imbalances are expected to limit growth.

3. Emerging Asia: Elections No Walk in the Park

• India:
  • Prime Minister Modi faces a re-energised opposition in the 2019 Lok Sabha elections.
  • Anti-incumbency sentiment could hurt the BJP.
  • If Modi makes concessions to appease farmers and informal business owners, fiscal slippage may occur.
• Indonesia:
  • President Joko Widodo is expected to win a second term.
  • Reforms are bearing fruit, and inflation remains tame.
  • Opposition coalition has increased support, nearly doubling parliamentary seats since 2018.

Comparison with Consensus

Where BNP Paribas is Above Consensus

• Brazil: Gradual economic recovery is expected, with low inflation and easy monetary conditions.
• Turkey: Fiscal and monetary adjustments are anticipated, though some fiscal easing may occur ahead of elections.
• Colombia: GDP growth is expected to recover close to potential, with inflation under control.

Where BNP Paribas is Below Consensus

• South Africa: Growth is expected to be sluggish due to policy uncertainty and external imbalances.
• Argentina: GDP contraction is likely, with inflation decreasing slowly.
• Mexico: Further deceleration is expected, alongside the US, due to inflation remaining above targets and a populist agenda.

Key Questions for 2019

1. Will Bolsonaro reform pensions?

   • Broad pension reform is needed to address Brazil's fiscal vulnerabilities.

2. Will Macri stay in power?

   • Macri faces an uphill battle due to economic challenges, but a fragmented opposition may help him.

3. Will Erdogan tighten his grip on power?

   • The local elections could either strengthen or weaken his position.

4. Will Modi manage farmers' frustration?

   • Farmers and informal business owners may challenge Modi's government in May's elections.

5. Will the ANC weaken?

   • If the ANC fails to secure a majority, it may need to form coalitions with the opposition.

Key Information

• The report highlights the importance of elections in shaping EM policy and economic outcomes.
• Fiscal sustainability and policy implementation are critical for several EM countries.
• Macroeconomic conditions, such as inflation and debt levels, are key indicators for market stability.
• The report provides an interactive roadmap for EM growth and inflation outlooks.

Disclaimer

• This document is non-independent research and constitutes a marketing communication.
• It is not investment research and should not be used as a basis for investment decisions.
• BNP Paribas and its affiliates may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• The information is based on public sources and may not be independently verified.
• The report does not constitute an offer to sell or issue securities and is subject to legal restrictions.