Strong disruptions in emerging markets

Emerging countries have been facing severe financial and monetary turmoil for several months. Indeed, the rise in interest rates in the United States, the appreciation of the dollar and the sharp decline in some currencies (Argentina, Turkey, South Africa, etc.) is causing a sharp slowdown in activity in several countries. In addition, the “trade war” launched by the United States already affects Chinese exports. Monetary convergence, with low rates everywhere, stemming from the crisis of 2008, is now over.

Indeed, a divergence is taking place between the OECD countries, China and the emerging countries, which are the first victims of this global disorder. Especially in Latin America, the possibility of a new financial crisis is resurfacing. The recent rise in interest rates by the US Federal Reserve (Fed) has led to massive capital outflows and a sharp depreciation of several currencies. In Argentina, the peso collapsed and capital flight accelerated, forcing the central bank to raise interest rates to 60%. Such rates, by blocking domestic demand, will drive the country into recession. The domino effect is inevitable. Thus, in Brazil, GDP growth continues to slow down (less than 1% per annum) due, in particular, to the drop in exports of manufactured goods, penalized by the Argentine crisis. However, these disruptions should not lead to a general crisis in emerging countries.

Indeed, the central banks of the concerned countries reacted very vigorously by massively raising their key interest rates. In addition, the governance of global finance (IMF) has reacted very quickly to stem a general contagion. In total, we are therefore reducing our worldwide growth forecasts down to 4.9% this year (versus 5.3% previously) and 4.7% in 2019 (versus 5.2%).