Looking at the world through reference ｜ Emerging economies face multiple challenges.
In the latest Global Economic Outlook report released by the World Bank on June 8, the global economic growth expectations including emerging economies were lowered again. The global economic growth is facing a series of unfavorable factors, such as further slowdown, the shadow of inflation and the tightening of the Federal Reserve’s monetary policy. Facing the complex situation, emerging economies need to take many measures to deal with it.
According to the report of the World Bank, the global economic growth forecast in 2022 and the growth forecast of developed and emerging economies have all been lowered. Among them, the global economic growth is expected to be lowered to 2.9%, far lower than the 4.1% in January; The economic growth expectation of developed economies is lowered to 2.6%; The growth expectations of emerging and developing economies have been lowered from 6.6% to 3.4%, far below the average annual growth rate of 4.8% from 2011 to 2019.
From the perspective of capital market, emerging economies continued to tighten monetary policy before and after the Fed raised interest rates, but it did not stop capital outflows. According to the data released by the International Finance Association (IIF) on June 7, in May this year, foreign capital flowed out of emerging markets for the third consecutive month, and the total net outflow of foreign capital from emerging markets in the past three months was $17.3 billion. Among them, the net outflow of foreign capital in May was 4.9 billion US dollars, compared with the net inflow of 22.8 billion US dollars in May last year.
The Federal Reserve started this round of currency normalization this year and has raised interest rates twice. It is widely expected that the Fed will continue to raise interest rates sharply and rapidly in the short term. In this context, international investment banks are still not optimistic about the recent trend of emerging markets. Jonathan Forton, an economist at IIF, said, "Due to geopolitical events, tightening monetary environment, soaring inflation and increasing concerns about the accumulation of greater risks, the rising risk of global recession is suppressing capital flows in emerging markets."
The International Monetary Fund (IMF) has repeatedly warned that the Fed’s faster tightening of monetary policy may lead to capital outflows and currency depreciation in emerging economies, and the prospects for economic growth are even more uncertain.
Suffering from the pressure brought by inflation, some emerging economies began to raise interest rates one after another last year, on the one hand to deal with inflation, on the other hand to prevent capital outflows. However, this has cooled the economic recovery to a certain extent, and adversely affected the export of commodity trade, making the economic recovery momentum of these countries encounter double challenges from internal and external sources.
If the economic growth rate of the United States declines, the economic growth rate of some emerging economies with high dependence on the American economy will also decline greatly. For emerging economies that adopt a free floating exchange rate system, the Fed’s interest rate hike means that their currencies will be affected by more speculative activities and increase the uncertainty of exchange rates.
Fitch Ratings, a rating agency, predicts that more than a quarter of the emerging markets rated by Fitch Ratings will have a "twin deficits" equivalent to more than 4% of GDP, that is, fiscal deficits and trade deficits coexist. Among them, deficit ratio in Tunisia, Kenya, Uganda, Rwanda, Romania and Maldives will reach at least 7%.
In addition, rising global food prices have put more pressure on emerging economies that rely on food imports and have weak financial conditions. A recent report by the rating agency Standard & Poor’s believes that the severity of the global food crisis is underestimated, and this crisis may hit the financial situation of emerging economies in the next few years.
However, there are still some favorable factors in emerging economies under the challenge, and the situation in different economies is also obviously different. For example, the net outflow of foreign capital in April and May this year mainly came from emerging market stock markets outside China. According to the Financial Times, the price of Hungarian government bonds dropped by 18% in the past year, while that of Brazilian government bonds rose by 16% in the same period, because the latter, as a major exporter of commodities, benefited from the rise in global prices.
Two strategists at Goldman Sachs also recently observed that a key indicator to measure the dollar has fallen by nearly 3% since its high point in mid-May, which indicates that emerging markets have rebounded. They pointed out that the growth data of emerging markets usually "bottom out" when the dollar peaks, and it is expected that these markets will outperform other regions of the world within a few months after the dollar periodically peaks.
Developed economies such as the United States and Europe are in many difficulties, and it is unlikely to take into account the impact of policies on emerging economies. Only by taking measures and working together to enhance economic resilience can emerging economies cope with the challenges and pressures brought about by the global economic downturn. (Zhou Wuying)
Final review: Qi Rong
Editor: Liao Bingqing
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