Wednesday, February 5, 2014

Roubini : Emerging Markets fall back to earth

by Nouriel Roubini

The financial turmoil that hit emerging-market economies last spring, following the US Federal Reserve's "taper tantrum" over its quantitative easing (QE) policy, has returned with a vengeance. This time, the trigger was a confluence of several events: a currency crisis in Argentina, where the authorities stopped intervening in the forex markets to prevent the loss of foreign reserves; weaker economic data from China; and persistent political uncertainty and unrest in Turkey, Ukraine and Thailand.

This mini-perfect storm in emerging markets was soon transmitted, via international investors' risk aversion, to advanced economies' stock markets. But the immediate trigger for these pressures should not be confused with their deeper causes: many emerging markets are in real trouble.
The list includes India, Indonesia, Brazil, Turkey and South Africa – dubbed the "Fragile Five" because all have twin fiscal and current-account deficits, falling growth rates, above-target inflation, and political uncertainty from upcoming legislative and/or presidential elections this year. But five other significant countries – Argentina, Venezuela, Ukraine, Hungary and Thailand – are also vulnerable. Political and/or electoral risk can be found in all of them, loose fiscal policy in many of them, and rising external imbalances and sovereign risk in some of them.
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Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
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