Emerging markets may get left behind, says Eurasia Group

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People cross a street outside a train station in Buenos Aires, on March 19, 2020.

Ronaldo Schemidt | AFP | Getty Images

Many emerging markets lack the resources needed to manage the ongoing coronavirus crisis — and may end up getting “left behind” when the global economy eventually recovers, according to an analysis by risk consultancy Eurasia Group.

Generally, many emerging markets don’t have the capacity — both in their health-care systems and financial space — to effectively contain the outbreak while limiting the economic hit on businesses and households, said Robert Kahn, director of global strategy and global macro at the firm.

He pointed out that over the past month, developed economies such as the U.S. and Germany announced large amounts of stimulus to support businesses and households during the pandemic. But that’s not a move that many developing economies can follow, he said.

“One of the real concerns we have is that many emerging markets get left behind, that they’re not able to re-engage in global activity at the same pace as the industrial world,” Kahn told CNBC’s “Squawk Box Asia” on Tuesday.

“They face restrictions, they face ongoing challenges, they don’t have the check book to deal with that,” he added.

Scenarios for how pandemic could play out

Emerging markets would lose out even if the coronavirus outbreak turns out to be “benign,” according to a report last week by Kahn and other Eurasia Group analysts.

In that scenario, there would be a “considerable deceleration” of new cases in key countries by late May with most transmission dying out by September, the analysts wrote. That would allow countries to lift the bulk of restrictions in mid to late May and the global economy recovers strongly, according to the report.

But emerging markets would experience a “delayed” peak in their outbreaks, the analysts wrote, without specifying when. That means that economic recovery in those countries would be “more staggered,” depending on their testing and social isolation capacity, the report read.

In another scenario, which the analysts described as “serious,” the outbreaks in many countries would start to subside by the end of July but tick back up in November — at which point most would be prepared to handle a new outbreak, said the analysts. But some emerging markets would have “persistent challenges” controlling the outbreak throughout the year, they added.

“These countries will face particularly damaging travel bans and other restrictions that prevent them from participating in the restart of the global economy, and leave them out of newly formed supply chains, deepening economic dislocations over the medium term,” they wrote.

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