NEW YORK, Oct 27 (Reuters) - Policy changes are in the cards as emerging markets prepare to enter an electoral cycle next year, JPMorgan said in a report that found a wide variation in post-pandemic recovery among developing economies.
By mid 2021, gross domestic product growth in emerging markets not including China (EMX) was 5.4% below the prior trend, more than twice the gap seen in developed economies.
The report points to disparity in healthcare systems and vaccination rates to partly explain the divergence.
The pandemic is expected to leave scars in medium-term growth of emerging market economies, and the impact will vary according pre-pandemic conditions, the economic importance of “high-contact” sectors, varying health and economic policy responses, and post-pandemic reforms.
"We generally see the weak links continuing to deliver sub-par outcomes and anticipate that EMX GDP will still be 3.7% below the pre-pandemic path at end-2022," said JPMorgan economists lead by Nora Szentivanyi, global EM economist.
"After accounting for income differences, we project that economies that are more reliant on tourism, and those with larger service sectors, will experience more persistent losses."
Developed markets are expected to end 2022 about 0.5% above their pre-pandemic path.
The divergences in growth will be high on voters' minds as EM enters an electoral cycle starting next year. Damage to medium term growth "will likely affect politics and policies materially, especially in Latin America," the report said.
Some of those effects are already being seen, with a sharp shift to the left in Peru's recent presidential election and another likely in Chile later this year. In Argentina, the left-leaning government suffered a big loss in primary elections last month.
Latin America and EM Asia ex-China (EMAX) are seen as the regions where GDP declines and the uneven recovery will have larger than average potential growth declines.
Middle-income populations in emerging markets had grown steadily leading into the pandemic, but the shock reversed the trend and has increased the most vulnerable populations, the report said.
"This creates fiscal and developmental challenges for (emerging market) policymakers and could act as a further drag on potential growth." (Reporting by Rodrigo Campos; Editing by David Gregorio)