The Economist - USA (2020-08-01)

56 TheEconomistAugust 1st 2020

1

F

atigue. shortnessof breath. Frayed

nerves. Lungs mottled by scars. Months

have passed since early survivors of co-

vid-19 recovered from the disease. But

some still report lingering after-effects.

The disease, it seems, can inflict lasting

damage, even in cases that did not prove

critical. The same may be true of the pan-

demic’s impact on economies, especially

in the developing world. Some acute dan-

gers seem to be receding. But chronic pro-

blems loom. What does not kill these econ-

omies may still leave them weaker.

A few months ago the coronavirus

shock looked financially lethal. But emerg-

ing-market bonds, currencies, and shares

have rallied strongly since plumbing dra-

matic depths in March (see chart), thanks

to a determined effort by the Federal Re-

serve, America’s central bank, to allay fi-

nancial stress at home by relieving a short-

age of dollars worldwide.

In China, the biggest emerging econ-

omy of all, the revival of activity has been

remarkable. Its gdp somehow grew by

11.5% in the second quarter, compared with

the first, an annual pace of 59%, according

toubs, a bank. That left it 3.2% higher than

in the prelapsarian era of April-June 2019.

Capital Economics, a consultancy, now ex-

pects that by the end of this year China’s

output will have caught up to where it

would have been without the pandemic.

China’s growth has helped lift commod-

ity prices, benefiting the roughly two-

thirds of developing countries that export

oil, metals and other primary products.

The dollar value of Indonesia’s goods ex-

ports in June was 2.3% above that of a year

earlier, defying expectations of a 12.3% fall.

Other big emerging economies have also

reported pockets of resilience or piecemeal

recovery. In Mexico remittances were over

3% higher in May than a year earlier, per-

haps because its emigrants took the oppor-

tunity to send money home while the peso

was cheap. India in May and June regained

over 90m of the 114m jobs lost in April, ac-

cording to the Centre for Monitoring Indi-

an Economy, a research firm.

Two big concerns remain, however. The

long-term worry is that the virus leaves be-

hind economic scars even after it departs.

The more immediate concern is that it has

yet to depart. Indeed, the surprisingly

strong response to the easing of lockdowns

(dubbed “revenge consumption”) in some

countries may have contributed to an up-

tick in infections in parts of China and

Vietnam (as well as richer economies like

Australia and Japan) that had successfully

contained the virus. And the resumption of

ordinary life has no doubt contributed to

the continued strong growth in infections

in India and much of Latin America. The

“recovery is unlikely to be a smooth pro-

cess”, note analysts at Capital Economics.

Emerging markets

A sigh of relief, a gasp for breath

HONG KONG

Short-term panic gives way to worries about long-term economic scars

On the mend

Emerging-market indicators, January 1st 2020=100

Source:Datastream

fromRefinitiv

*JPMorganChaseEMBIGlobalCoreIndex

†MSCIindex

110

100

90

80

70

60

Jan Feb Mar Apr May JulJun

Currencies†

Bonds*

Shares†

Finance & economics

57 DeferredpainforIndia’sbanks

58 Buttonwood:TheSPAC hack

59 Bridgewater’swoes

59 WilltheEUlevytaxes?

60 EmmanuelFarhi,a prolificeconomist

61 Free exchange: Automation and jobs

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