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Jul 2021

S&P: Slow vaccination keeps emerging markets' recovery at risk

Source: Middle East Insurance Review | Jun 2021

The economic recovery in emerging markets will remain highly vulnerable to pandemic-related setbacks, given the slow vaccine rollout, said S&P in its monthly emerging markets report.
“While it looks that we are past the worst of the latest COVID-19 wave in most of the emerging markets, the likelihood of intermittent lockdowns will remain high for some time. As such, vaccination progress will remain a key variable of future economic performance. Unfortunately, most EMs are far from reaching sufficient vaccination levels to ensure an uninterrupted economic recovery,” the report said.
The recent rise in commodity prices is supportive for most emerging markets; however, inflation risk is increasing, along with pressure for tighter monetary policy. Rising commodity prices tend to benefit emerging markets, especially producers of energy (Colombia, Russia and Saudi Arabia) and metals (Brazil, Chile and South Africa).
However, the recent rapid increase in commodity prices is heightening inflationary pressures that could linger for some time. This could prompt some emerging markets’ central banks to tighten monetary policy earlier rather than later to contain inflation expectations, at a time when economic recovery is fragile and vulnerable to setbacks.
The report added that the risk of social unrest in emerging markets will remain high, undermining policy predictability.
The report said financing conditions remain supportive. Appetite for emerging market debt remains robust and the number of issuances is rising. Emerging market spreads are close to their pre-pandemic levels. Potential for an abrupt repricing of US monetary policy is a key risk for financing conditions in emerging markets. M 
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