S&P’s 2021 credit outlook for emerging markets

As the year comes to a close and global markets remain volatile due to the ongoing pandemic, the focus shifts towards economic recovery in 2021, with a particular spotlight on emerging markets. The uncertainty surrounding the global credit trends has left many wondering about the key risks that lie ahead for the coming year. To shed light on this matter, CNBC Africa recently had the opportunity to interview Jose Perez-Gorozpe, Head of Credit Research in Emerging Markets for S&P Global Ratings. This interview provided valuable insights into the outlook for emerging markets in 2021. Perez-Gorozpe began by acknowledging the positive momentum in emerging markets, attributed in part to the optimism surrounding the development of vaccines. The news of potential vaccines has brought hope to emerging markets, which have struggled to contain the pandemic due to limited resources for extensive lockdown measures. While a second wave of infections remains a concern, Perez-Gorozpe noted that countries may opt for targeted social distancing measures instead of full lockdowns. Several factors have contributed to the resilience of emerging markets, such as the resumption of economic activity in the third quarter of the year. China's robust recovery has also bolstered commodity exporters like Brazil, Chile, South Africa, and Indonesia. Additionally, the outcome of the US presidential election has generated positive investor sentiment towards emerging markets, anticipating a more predictable trade policy under President-elect Joe Biden. However, Perez-Gorozpe highlighted potential risks in the short term, including the surge in COVID-19 cases in Europe and the United States, which could dampen economic activity and impact emerging markets. He also underscored the possibility of volatility in financing conditions, influenced by country-specific factors. When discussing specific countries with favorable conditions for investment, Perez-Gorozpe noted that countries with strong liquidity, stable currencies, and supportive fiscal measures are likely to attract more capital. These nations are expected to experience a quicker economic recovery compared to those facing challenges. The disparity in recovery rates across emerging markets reflects varying degrees of resilience and vulnerability. Moreover, Perez-Gorozpe emphasized the importance of industry-specific factors in shaping the recovery trajectories of different countries. Nations that export infrastructure-related materials to China, such as Brazil, Chile, South Africa, and Indonesia, have benefitted from sustained demand in the commodities sector. Conversely, countries reliant on tourism-related services, like Thailand, Turkey, Malaysia, and the Philippines, may face a slower recovery due to persistent travel restrictions. Looking ahead, Perez-Gorozpe cautioned that the road to full economic recovery for emerging markets will be long and challenging, especially for sectors heavily dependent on international travel and tourism. Despite the imminent approval of vaccines, the revival of these sectors may lag behind other industries, posing additional hurdles for certain emerging economies. In conclusion, as global markets navigate through the uncertainties of the pandemic, the resilience and adaptability of emerging markets will be put to the test in the coming year. While some nations show promise for a swifter recovery, others will need to overcome obstacles and adapt to the evolving economic landscape. The key theme for emerging markets in 2021 remains a delicate balance between optimism for recovery and caution against potential risks.