In December 2016, the U.S. Fed raised interest rates for the first time in a year, and said they planned more increases in 2017. Emerging market currencies took a bit of a dive, but overall investors didn’t overreact and run for the doors with their money. For the bigger picture, you can read IMF Chief Economist Maurice Obstfeld’s blog that outlines how the U.S. election and Fed decision will impact the global economy. Continue reading “What the Fed Rate Rise Means for Corporate Debt in Emerging Markets” »
Debt held by firms in emerging market economies in a currency other than their own poses extra complications these days. When the U.S. Fed does eventually raise interest rates, the accompanying further strengthening of the U.S. dollar will mean an emerging market’s own currency will depreciate against the higher value of the U.S. dollar, and would make it increasingly difficult for firms to service their foreign currency-denominated debts if they have not been properly hedged.
In the latest Global Financial Stability Report, we find that firms in emerging markets that have increased their debt-to-assets ratios have generally also increased their overall sensitivity to changes in the exchange rate—commonly called exchange-rate exposure.
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“It was the best of times, it was the worst of times.” With these words Charles Dickens opens his novel “A Tale of Two Cities”. Winners and losers in a “tale of two commodities” may one day look back with similar reflections, as prices of metals and oil have seen some seismic shifts in recent weeks, months and years.
This blog seeks to explain how demand — but also supply and financial market conditions — are affecting metals prices. We will show some contrast with oil, where supply is the major factor. Stay tuned for a deeper analysis of the trends in a special commodities feature, which will be included in next month’s World Economic Outlook.
Ultimately, the solution has to involve higher interest rates (on both deposits and loans), efforts to create a broader set of financial assets for the population to invest in, and a broad-based property tax that covers the majority of China’s housing stock.
Following the global economic crisis, Europe's emerging economies will need to find new sources of growth to increase their share of world markets. Marek Belka, head of the IMF's European Department, says growth will need to come from manufacturing and services, rather than, in the past, construction, real estate, and banking. But he argues that Emerging Europe has transformed itself many times before and is quite capable of doing it again.