Interview by El Pais, Madrid, May 9. 2020
- In the GFC of 2008/2009 the world fell into recession for a while (one year), but the emerging world almost didn’t suffer: they kept growing, mostly thanks to commodity prices. Now, the story looks pretty different: even emerging countries will experience negative growth in 2020… It seems to be a truly global crisis. Should this worry us more?
JF: Almost everything about the Coronavirus Recession of 2020 should worry us more than the GFC. Yes, Emerging Market countries will experience negative growth in 2020, and it will probably be worse than the IMF’s recent forecast of -1.0%. They have been hit by a loss of export markets (especially in the case of the oil exporters), a loss of emigrants’ remittances, and a loss of capital inflows, not to mention the direct effects of Covid-19 on the health of their populations (which so far looks particularly bad in Latin America, but not as bad in Africa). If the 2010 rise in commodity prices was an important part of the economic recovery in developing countries, the mechanism was resurging demand from China, which bounced back quickly at that time. This is less likely to work this time. Also, many EM countries entered the 2008 GFC with newly strengthened balance sheets (higher foreign exchange reserves and lower dollar-denominated debt) and in some cases with stronger budgets. That helped them weather the GFC. But it is less true this time. Backsliding in areas such as corporate borrowing in dollars has left EMs more vulnerable.