10 September 2018
The Business Times – Views from the Top
Is another 1997-style emerging market crisis on the cards?
Is the global economy under threat once more? Leon Perera, CEO of Spire Research and Consulting shared his insights in The Business Times – Views from the Top section on 10 September 2018 on the risks facing the world economy.
Some economists have pointed to signs of an imminent economic crisis similar to the emerging markets currency crisis of the late 1990s or the Lehman shock of 2008.
Perera highlighted that the US continues to register strong growth in stock prices, jobs and Gross Domestic Product (GDP) with further Fed interest rate hikes likely. However, emerging market growth is slowing down and some countries have run into trouble, like Turkey.
In this context, the biggest risk to the world economy may be the potentially destabilizing effect of a strong US dollar and US economy on emerging markets.
This confluence of factors raises the risk of capital outflows from emerging markets, credit woes as well as currency depreciation and volatility.
Geopolitical disturbances could also wreak economic chaos. The process of denuclearization on the Korean peninsula, uncertainties surrounding the Iran nuclear deal as well as Turkey’s financial crisis all have the potential to cause economic shocks.
The text of Perera’s comments are provided below.
The biggest risk to the world economy today stems from the divergence between the US economy and emerging market economies. The US continues to see strong growth in GDP, jobs and stock prices. The Fed is poised to hike interest rates. Most emerging markets are seeing growth rates that are not historically high. China is slowing its growth rate. This raises the risk of capital outflows from emerging markets and exchange rate volatility as the US dollar strengthens, which in turn could trigger credit woes in some emerging markets. In light of the financial crisis in Turkey and the uncertainties surrounding the Iran nuclear deal and denuclearization on the Korean peninsula, “Black Swan” geopolitical shocks cannot be ruled out.
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Spire Research and Consulting is the leading research consultancy in global emerging markets. Spire's competitive advantage lies in its ability to deliver actionable intelligence on the external business environment in support of its clients’ strategic decision-making in marketing and business development. Spire's clients include 50 Global Fortune 1000 companies and government agencies in 15 countries. For more information, please visit www.spireresearch.com.