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3 main factors causing the emerging market crisis

There are reasons to be more worried by the current EM crisis than what we saw in 2013 and 2014, when emerging markets were also causing market jitters. Emerging markets are currently hit by a cocktail of mainly three factors: 

  1. A hard landing in the Chinese manufacturing and construction sector 
  2. A sharp drop in commodity prices 
  3. Looming rate hikes from the Fed

Commodity exporters like Brazil and Russia are feeling a big hit and, in addition, many countries struggle with political unrest - not least Brazil having a major corruption scandal running, adding a political crisis to the economic challenges. Brazil's GDP is expected to fall 2% this year, the worst performance in decades. 

In the short term, a risk factor for these markets is a further decline in commodity prices, which would add pressure. While we expect oil prices to bottom and rise gradually from here, the near-term picture is highly uncertain and a further decline cannot be ruled out due to a temporary supply glut in the market. Eventually, prices will adapt to the marginal costs, which are seen around USDD60-65 per barrel. But when that happens is uncertain.

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