The Economist - 04.12.2021

TheEconomistDecember4th 2021 Finance&economics 75

largemargin,theworld’sbiggestconsumer
ofaluminium,coal,cottonandsoyabeans,
amongothercommodities,andamajor
importer of goodsranging from capital
equipmenttowine.
Ranking the same 40 economies by
theirexportstoChina,asa shareoftheir
owngdp,yieldsanindexofvulnerabilityto
thecountry.Manyofthebiggestexporters
toChina,likeVietnam,arecriticallinksin
manufacturing supply chains, which
shouldbeuntroubledasChina’sdomestic
economyslows,aslongasAmericanskeep
shoppingandSino­Americantrade rela­
tionsstaystable.Atgreater riskarethe
poorercommoditiesexporters thathave
helpedfeedChina’spopulationandpro­
videforitsbuildingboom.
Thisgaugeofexposure toChina can
thenbecomparedwithourmeasureofvul­
nerability to American monetary­policy
tightening(seechart2).Somecountries’
fatesaremorelinkedtooneofthegiants
thantheother.Anunluckybunch,suchas
BrazilandChile,appearmostlikelytosuf­
ferfroma doublewhammy.Despitehigh
levelsofdebtandsoaringinflation,high
commoditypriceshaveenabledBrazilto
justaboutmaintaininvestors’confidence.
Asoftening Chineseeconomycouldde­
priveBrazilofthatbenefit,leading toa
tumblingcurrency,evenhigherinflation
andthepossibilityofeconomiccrisis.

Theworldhasfacedthecombinedpres­

sure of hawkishAmerican policy anda

stumblingChinabefore.Inthemid­2010s

fragile emergingmarketswere squeezed

bya risingdollar,astheFedwithdrewthe

monetarysupportprovidedduringtheglo­

balfinancialcrisis,whilea badlymanaged

round of financial­market liberalisation

andcredittighteningtriggereda slumpin

China.Growthacrossemergingmarkets,

excludingChina,saggedfrom5.3%in 2011

tojust3.2%in2015.

Thesqueezethistimeisalmostcertain

tobeworse.ThatisinpartbecausetheFed

isexpectedtotightenpolicymorequickly

thanit didinthe2010s,whena weakrecov­

eryandstubbornlylowinflationforcedit

togoslow.Thenmorethantwo­and­a­half

yearselapsedbetweentheFed’sannounce­

ment ofitsintentiontoreduceitsasset

purchasesandthefirstriseinitspolicy

rate.Thistime,bycontrast,the 12 months

followingtheFed’sannouncementofits

plan tobegin taperinginNovember are

likelytoinvolvea completehalttobond­

buyingand,accordingtomarketpricing,at

leasttwointerest­raterises.

China,foritspart,alsoseemsatgreater

riskofa hardlandingtodaythanitwasa

half­decadeago.Mosteconomiststhought

growthwouldslowto4.5­5.5%evenbefore

theemergenceofOmicron.That would,

withtheexceptionof2020,bethelowest

growthratesince1990.

Anotherreasonforthepainthistime

aroundistheadditionofa thirdhazardto

emergingmarkets:thespreadofOmicron

andtheriskoffuturevariants.Littleisyet

knownaboutthedangerposedby Omi­

cron.Buttheemergingworldremainspar­

ticularlyvulnerabletonastyoutbreaksof

thevirus.Witha fewexceptions,vaccina­

tionratesinpoorercountrieslagbehind

thoseinrichones.Justa tenthofAfrica’s

populationhasreceivedevenonejab,less

thantheshareofAmericansthathasre­

ceiveda thirdshot.Ofour groupof 40

countries,vaccinationratesareparticular­

lylowinEgyptandPakistan,twocountries

thatarealsoespeciallyvulnerabletoAmer­

icanmonetarytightening.

The spread ofa new variant against

whichexistingvaccinesmaybelesseffec­

tivecouldproveback­breakingtotourism­

dependenteconomies.Andpublicpurses

intheemergingworldmorebroadlyarein

nofitstatetoextendorreintroducepan­

demicreliefmeasures.

Working out how the three threats

mightinteractwitheachotheristricky.But

itispossiblethattheircoincidencecould

leadtostillmoreeconomicpainforpoorer

countries.Unforgivingcapitalmarketsas

the Fed tightens could leave emerging­

marketgovernmentsfiscallyhamstrungin

theface ofnew outbreaks. Omicron­in­

ducedlocallockdownsinChinacoulddeal

emerging­marketexportersanotherblow.

Thetourist­dependentcountriesofSouth­

EastAsia,oncepopulardestinationsfor

Chinesevisitors,arelikelytoremainde­

sertedfora whilelonger.

Thepandemic’sthirdyearwasalready

destinedtobearockyoneforemerging

markets,stuckastheyarebetweenthetwo

polesofa tighteningAmericaanda slow­

ingChina.Newvariantscouldmakethe

journeystillmoreperilous.n

Weakspots

Selectedeconomies,vulnerabilitytoAmericanmonetarypolicy

2021 orlatest

Sources:IMF;WorldBank;BIS;TheEconomist *As%ofGDP †%changeona yearearlier ‡As%ofreserves

1

Argentina 12 37 39 40 36 33

SriLanka 33 39 21 24 38 31

Egypt 36 36 28 21 20 28

Pakistan 21 32 22 33 25 27

Brazil 20 34 26 31 10 24

Tu r ke y 29 9 4 37 37 23

Chile 30 6 32 16 28 22

India 25 35 10 26 8 21

Nigeria 34 8 17 36 1 19

Malaysia 6 29 15 10 35 19

SouthAfrica 7 27 8 19 32 19

Mexico 17 22 11 25 17 18

Poland 8 18 7 20 24 15

Indonesia 18 12 20 5 22 15

Philippines 16 21 12 17 5 14

SouthKorea 3 16 9 8 26 12

Thailand 19 20 2 3 14 12

Vietnam 9 14 1 6 19 10

Russia 2 1 5 28 4 8

SaudiArabia 5 4 3 14 3 6

Current-

account

balance*

Gross

public

debt*

Foreign-

exchange

reserves*

Vulnerability

indexscore

Averageof

fiveindicators

Consumer

prices†

External

debt‡

Countryrank,4=mostvulnerable

Strongest Weakest

Spheres of influence

Vulnerability indices, 2021 or latest

Selected economies, 40=most vulnerable

Sources:IMF;WorldBank;BIS;TheEconomist

*Rankingof 40 countriesbasedonexportstoChina as % of GDP

†Rankingof 40 countriesbasedonfiveindicators

includinginflationanddebttoGDP



35302520151050

VulnerabilitytoAmericanmonetarypolicy†

China vulnerability*

40

30

20

10

0

GDP, 2020

$trn

3



Argentina

Pakistan Egypt

Brazil

Tu r ke y

Chile

India

Nigeria

Malaysia

Suth

Africa

Mexico

Poland

Indonesia

Philippines

South

Korea

Thailand

Vietnam

Russia

Saudi

Arabia

Sri Lanka