Many emerging markets were in recession last year and are only slowly emerging. Tight financial conditions and flat to inverted yield curves will make the recovery slow and fraught with risks. Global growth will be lower as a result.

Flattening and inverted yield curves are negative for both EM and global growth. Our EM yield curve index tracking inversions in EM has rolled over on account of yield curve inversions in India, Indonesia and Turkey in the past 6-12 months.

260214_emyieldcurveThe slowdown in EM is particularly inconsistent with still lofty expectations for growth (and their equities) in the developed world. This is particularly clear if you look at the share of EM GDP growth relative to the current and estimated expansion in world GDP.

260214_emgrowth1Even without China, EM economies have made up 40% of global GDP growth since 2008 despite accounting for less than 30% of total GDP.

260214_emgrowth2From 1981 to 1999 the variation in EM GDP accounted for 17% of the variation in global GDP (in USD terms). This number rises substantially to over 80% for the period 2000-2018 (including IMF forecasts for global GDP).

260214_emgrowthshareThe main conclusion is then that the global economy cannot decouple from lower growth in emerging markets.