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Emerging Markets Face Heightened Risks
The geopolitical shocks and associated inflationary pressures of the Russia-Ukraine conflict pose persistent, notable risks to emerging market economies’ recoveries.
After suffering more economic scarring from the coronavirus pandemic than their developed peers, emerging markets (EMs) are now confronting a darkening economic and credit outlook—due to the Russia-Ukraine conflict and sustained inflationary pressures, alongside tighter-than-expected financing conditions and the uncertainty of China’s growth trajectory, according to S&P Global Ratings. Market participants will be watching how EMs endure higher commodity prices, and balance fiscal consolidation and social stability.
Food and energy prices sent roaring by the military conflict have contributed to inflation across EMs. Inflation is compounding pressure on corporate margins and household purchasing power. Each EM’s level of vulnerability to the surging prices depends on its balance of food and energy imports and exports, according to S&P Global Economics.
“The EMs most vulnerable to the surging prices are significant net importers of both food and energy, while those with sizable food exports and modest energy imports stand to benefit,” S&P Global Ratings Lead Economist Tatiana Lysenko said in recent research. “Lebanon, Jordan, and Tajikistan are the most vulnerable economies in our sample from a balance-of-payments perspective, spending more than 10% of GDP on energy and food imports. Tunisia’s food and energy imports are also significant, mainly driven by energy. Egypt spends relatively less on importing energy, but is highly exposed to rising food prices.”
The elevated prices have supported some EM currencies in Latin America, despite the geopolitical uncertainties of the Russia-Ukraine conflict and regional political pressures. Brazilian, Peruvian, and Chilean currencies strengthened significantly in the first quarter, according to an S&P Global Market Intelligence analysis.
But while inflation has led to capital inflows for some EMs, credit conditions overall face notable headwinds from the potential for prolonged inflationary pressures and high energy prices, and the risk that financing conditions could weaken in the aftermath of the U.S. Federal Reserve’s rapid monetary tightening. Inflation is already increasing social tensions in EMs across Latin America, where protests and strikes have occurred in Argentina and Peru.
Amid EM sovereigns’ difficulty dealing with the unrelenting challenges of the costs of the pandemic, inflation, and meeting protracted social demands, S&P Global Ratings anticipates local and regional governments’ borrowing to stay elevated above $1.2 trillion over the next few years.
Today is Monday, April 25, 2022, and here is today’s essential intelligence.
Written by Molly Mintz.
Economy
U.S. Packaged Food Companies Could Fail Additional Inflationary Stresses
The Consumer Price Index rose 8.5% year-over-year in March, buoyed by extraordinary energy and food costs, supply constraints, and strong consumer demand. The Russia-Ukraine conflict, along with renewed lockdowns in China due to a COVID surge, only add to the pressure. Packaged food companies, which fared well during the height of the pandemic, have seen moderating demand along with high inflation eat away at profits. Public company guidance for inflation range from low-single- to mid-double-digit ranges, depending on their commodity baskets and product mix.
—Read the full report from S&P Global Ratings
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Capital Markets
Private Credit, Equity Scaling Up Capital For Industrial Decarbonization
Barriers to entry have eased significantly for private equity and credit looking to fund North American energy transition ventures, but premiums for sustainable financing must fall to enable deep industrial decarbonization, industry experts said. “Private clean-tech companies up until the last two years were really funded by wealthy individuals, sovereign wealth funds, and corporates,” Skip Grow, Morgan Stanley managing director for power and utilities, said during an April 20 panel at Bloomberg New Energy Finance’s New York City summit. “There was virtually no ecosystem to support the funding of these companies.”
—Read the full article from S&P Global Market Intelligence
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Global Trade
‘Interesting Times’ Likely Now The Norm For U.S. Metals Markets
Whoever first uttered the expression “May you live in interesting times” must surely have envisioned today’s U.S. metals markets. The saying — part blessing, part curse — is an apt summation of current times. From pig iron to nickel, aluminum to steel, U.S. pricing has soared once again on geopolitical events, supply chain strains, and overall uncertainty. Just as domestic markets began to stabilize from record price increases in 2021 and the economy was coming to terms with the realities of a post-pandemic world, inflation bit hard in the first quarter of 2022, Russia invaded Ukraine and a new COVID-19 variant emerged.
—Read the full article from S&P Global Commodity Insights
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ESG
Listen: Path To Net Zero For Energy Systems: Complicated But Feasible, IPCC Finds
A new report from the U.N.’s Intergovernmental Panel on Climate Change, or IPCC, charts a challenging but feasible course ahead for many sectors in achieving net zero emissions. The report warns that delayed action could result in significantly worse losses and damages, including trillions of dollars worth of stranded fossil fuel assets. In this Earth Day episode of ESG Insider, hosts Lindsey Hall and Esther Whieldon talk with a contributing author to the report, John Bistline, who is program manager in the Energy Systems and Climate Analysis Group at the Electric Power Research Institute, or EPRI. He explains that a low-carbon future will depend on transforming energy systems that rely on electricity or fossil fuels to operate. And he talks about the potential challenges energy systems face in pursuing net zero emissions by 2050, and the actionable takeaways in the report for companies.
—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1
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Energy & Commodities
Feature: Rising U.S. Gasoline Costs, Refinery Closures And The Renewable Fuel Standard
U.S. refiners are taking their plea to the public with a new ad campaign launched by Fueling American Jobs Coalition asking President Biden to lower gasoline prices by fixing the Environmental Protection Agency’s Renewable Fuel Standard, which mandates volumes of renewable fuel blending required by refiners. “This new ad campaign comes as experts warn that the broken RFS is adding up to 30 cents/gal at the pump, and as Russia’s war in Ukraine and record inflation push gas prices to near-record levels nationwide,” the group said in an April 22 statement.
—Read the full article from S&P Global Commodity Insights
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Technology & Media
Microsoft’s Cloud Business Set To Fuel Continued Growth
Microsoft Corp. is expected to maintain its streak of profitable quarters on the enduring strength of its cloud business when the company reports earnings April 26. Microsoft’s cloud services drove much of the company’s better-than-expected earnings and revenue results for the past four quarters, and analysts expect an encore in the company’s upcoming fiscal third-quarter report given the continued acceleration of digital transformation across many enterprises.
—Read the full article from S&P Global Market Intelligence
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