IMF fears “turbulence” for emerging economies

INFLATION – In a note published on Monday, the International Monetary Fund (IMF) estimates that the hike in key rates in the United States and the Omicron variant are risk factors for the economies of emerging countries.

LCI editorial staff with AFP – 2021 – 00 – 10 T 07: : 00: 22. 450 + 01: 01

It is not yet the storm, but the emerging economies of should prepare “for episodes of economic turbulence” , alert the International Monetary Fund (IMF) on Monday. The body, which is due to publish its latest updated forecasts at the end of January, believes that the global recovery should continue this year and next year. However, beware of emerging countries where “the risks to growth remain high due to the stubborn resurgence of the pandemic”, warn Stephan Danninger, Kenneth Kang, Hélène Poirson, IMF economists in a blog post.

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Omicron variant: the planet on alert

Higher Debt Coup

Since mid-December, the Omicron variant has been spreading rapidly around the world and exploding the number of contaminations wherever it is the majority. Although this variant is less dangerous than the previous ones, it is most often accompanied by restrictions that compromise growth, including in the great world powers.

“Given the risk that this may coincide with faster Fed rate tightening, emerging economies are expected to prepare for episodes of economic turbulence “, write IMF officials especially as these countries are already facing “high inflation” and “considerably higher public debt”.

The American Federal Reserve (Fed) has, in fact, signaled its desire to raise its key rates more quickly and more aggressively than expected to contain the runaway inflation in the United States which weighs on households and American growth.

A rise in key rates means that the costs of refinancing the debt of a number of emerging countries denominated in dollars will increase. However, these countries are also lagging behind in the economic recovery and are therefore less able to absorb these additional costs.

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“While dollar borrowing costs remain low for many, concerns about domestic inflation (…) led several emerging markets last year, including Brazil, Russia and South Africa, began to raise interest rates “, further note the IMF. Ultimately, faster Fed rate hikes could “shake up financial markets and tighten global financial conditions”, add the authors. The risk is a slowdown in demand and trade in the United States as well as the outflow of capital and currency depreciation in emerging markets. The IMF urges emerging markets to take action “now (…) to reduce vulnerabilities” . The Washington institution finally recommends “clear and coherent communication” monetary policy plans to “improve understanding of the need to seek price stability”

LCI editorial staff with AFP

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