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Southeast Asia to relinquish its lead over Latin America says Moody’s

While the emerging economies of Southeast Asia have outperformed their counterparts in Latin America for most of the past two decades, their lead will slide in the next few quarters as Southeast Asian governments clamp down to fight the pandemic’s lingering second and third waves.

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The Delta surge is casting larger clouds over the global recovery and emerging markets are in the thick of it. Despite the ebbing of the coronavirus variant in India, where it first emerged, its spread in Southeast Asia, Africa, and the Middle East has steepened the road to recovery in these regions.

Though Delta’s rampage has occasioned only small changes to our forecast for emerging markets as a whole, there are large shifts in the distribution of growth across regions.

Topping the list is a substantial downward adjustment to the outlook for Southeast Asia, which stands in stark contrast to our view of improved prospects in Latin America.

While the emerging economies of Southeast Asia have outperformed their counterparts in Latin America for most of the past two decades, their lead will slide in the next few quarters as Southeast Asian governments clamp down to fight the pandemic’s lingering second and third waves.

Key messages

  • Southeast Asia will relinquish its traditional lead over Latin America this year.
  • The open-at-all-costs approach has bolstered Latin American economies.
  • Southeast Asia’s key role in global electronics supply chains will drive medium-term gains.
  • Commodity-reliant Latin America will see limited growth in jobs and investment.
  • Public health and political risks loom in both regions.

LatAm in the lead

The latest data on consumer spending, retail sales, industrial production and economic activity show a smaller hit to growth in Latin America’s largest economies in the first half of the year than we initially expected.

This result stems in large part from leaders’ push to keep economies running even at the expense of adverse health outcomes. The push to reopen at all costs—on display most prominently in Brazil and Mexico but also in play in Chile, Colombia and Peru—underpins upgrades to the forecast in each of the past three forecast cycles.

Improved prospects for Brazil, the third-largest emerging economy after China and India, have nudged the outlook for emerging markets as a whole slightly higher.

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