Growth In Emerging Economies Has Been Hit

Citibank pointed out that in many ways, the growth of emerging economies has been hit. The core issue facing emerging markets is the weakening of Global trade and the impact of China's declining import growth. This ended the rapid growth of China's investment led economy and ended strong global trade growth. Previously, China and the world Trade The rapid growth has brought a rare external positive shock to emerging markets in the past 2002-2013 years. Many emerging market countries are now faced with a "broken growth model". Because neither fiscal nor credit policies can offset the external negative impact they face.

Although the currencies of emerging markets are very cheap according to historical standards, it is hard to say that emerging markets are out of crisis. At present, emerging markets face two major threats. One threat is that the Fed raises interest rates and the other is China. Higher interest rates in the US will threaten capital flows in emerging markets, largely because of the cyclical nature of the funds flowing into emerging markets over the past five years, which may be affected by the Fed's interest rate hike.

Therefore, the RMB must be depreciated, which will be opposite to the market. emerging market Risk appetite has a negative effect: a weak renminbi has a negative impact on the competitiveness of emerging markets. At present, fiscal policies in emerging market countries are mostly deflated because private capital markets are less tolerant of rising public debt levels in emerging markets. Even in countries such as Indonesia and Korea, which are actively loosening fiscal policy, the easing rate is relatively low. In addition, domestic credit conditions in many emerging market countries are still tightening because many countries have experienced domestic "credit blowout". This means that in emerging markets, market demand for domestic credit markets is low.

So, Gross domestic product The three main sources of growth - exports, public and private spending - are all limited. The continuation of this issue has allowed Citigroup to underestimate the pace of slowdown in emerging markets in the past four years.

Many financial vulnerabilities still exist. The difference between this crisis and the emerging market crisis in the 80-90 century is that the main source of the last emerging market crisis is the balance of payments. The root of this crisis is more diversified: not only the balance of payments problem, but also the crisis of economic growth. However, the revenues and expenditures of emerging markets are indeed very fragile. In some countries (South Africa), the current account continues to be in deficit, while foreign debt in other countries (Brazil, Russia, Turkey, China, India and Indonesia) has been rising in recent years.

Despite these challenges, growth in emerging markets is likely to pick up. Although the currencies of emerging markets may continue to fall, they are already at a low level. This fact may pave the way for new growth in emerging markets. There is plenty of evidence that cheap money will help economic growth. It's like a strong currency squeezing production capacity through Dutch disease. The effect of a cheap currency may be just the opposite. IMF believes that if the real effective exchange rate (REER) is depreciated by 10%, the growth of net exports will increase GDP by 1.5%.