'Emerging markets won't suffer from current account deficits post-COVID'

ANKARA

Imports have already surpassed pre-crisis levels in all major emerging markets but most trade deficits have not expanded due to booming exports, according to the Institute of International Finance (IIF).

"Current account deficits will not be a feature of the initial phases of the recovery from COVID -19," the global financial body said.

Emerging markets' current account deficits were eradicated in the coronavirus crisis, it said, adding exceptionally deep recessions diminished imports dramatically, improving current accounts.

"COVID-19 was a growth and health crisis in emerging markets, but not a “traditional” external funding stress event," the IIF underlined.

Capital outflows materialized but there were no big external deficits to be financed, it said.

Imports are turning back to pre-crisis levels in almost all countries, signing an economic recovery, it noted.

"Despite higher imports, trade deficits remain generally small or inexistent due to booming exports," the institute said, adding high commodity prices are the main reason behind strong exports and are a core "tailwind" for countries like Brazil and South Africa.

The IIF said in many nations, the trade balance year to date is remarkably better than in the same period in 2019.

Regarding Turkey, the global body said the country experienced as much import compression last spring as emerging market peers, "but policy settings are such that strong growth takes precedence over consistently narrowing external imbalances."

It said imports went down in May due to tighter financial conditions, "but we still expect a current account deficit of around 4% of GDP this year."