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Crossborder capital flows have been intensified last decades with the greater financial integration. After the global financial crisis in 2008 2009, emerging markets economies (EMEs) have (re)started to be a significant target of global capital flows . “Emergingmarket” assets and currencies became objects of desire on the part of global investors thanks to the global factors (such as US interest rates, risk aversion) and domestic factors ( such as the country’s external financing needs , structural characteristics, the exchange rate regime ). However, emerging markets will suffer a net outflow of capital in th e year of 2015 for the first time since the 1980s as their economic fortunes darken and the US Federal Reserve prepares to lift interest rates. Emerging nations were facing a fifth consecutive yea r of slowing growth, adding that an increase in US interest rates could exacerbate conditions in some leading economies. With the next Federal Open Market Committee ( FOMC) press conference scheduled for December 15, 162015 , only one week away, the effect o f increasing in Fed ’s interest rate on EMEs is one of the biggest concerns all over the world at the end of 2015. This article considers some important factors affecting the Fed ’s decision on lifting the interest rate and analyses how an interest rate hike would influence on EMEs in the perspective on the financial capital outflow from emerging markets.
THE EFFECTS OF INCREASING IN FED’S INTEREST RATE ON THE EMERGING MARKETS Truong Van Hung - 신천의 December 07, 2015 Abstract Cross-border capital flows have been intensified last decades with the greater financial integration After the global financial crisis in 2008-2009, emerging markets economies (EMEs) have (re)started to be a significant target of global capital flows “Emerging-market” assets and currencies became objects of desire on the part of global investors thanks to the global factors (such as US interest rates, risk aversion) and domestic factors (such as the country’s external financing needs, structural characteristics, the exchange rate regime) However, emerging markets will suffer a net outflow of capital in the year of 2015 for the first time since the 1980s as their economic fortunes darken and the US Federal Reserve prepares to lift interest rates Emerging nations were facing a fifth consecutive yea r of slowing growth, adding that an increase in US interest rates could exacerbate conditions in some leading economies With the next Federal Open Market Committee (FOMC) press conference scheduled for December 15, 16/2015, only one week away, the effect o f increasing in Fed’s interest rate on EMEs is one of the biggest concerns all over the world at the end of 2015 This article considers some important factors affecting the Fed ’s decision on lifting the interest rate and analyses how an interest rate hike would influence on EMEs in the perspective on the financial capital outflow from emerging markets Keywords: increasing Fed’s interest rate, emerging markets’ response, huge shock to emerging markets, emerging market economies, triggering global debt crisis, capital flight to quality, net outflow of capital from emerging market 1 Introduction The integration of emerging markets into the global financial system has been characterized by cyclical periods of capital inflows, interrupted by sudden capital outflows and financial crises Probably the most renowned boom-and-bust cycle was the surge of private capital flows to emerging markets during the 90’s that ended with a succession of crises, starting with Mexico in 1995 and then touching East Asian countries in 1997-1998, Russia in 1998, Brazil in 1999, Argentina and Turkey in 2001 The following boom to emerging markets during the 2000’s was again interrupted by a sudden reversal of capital flows during the global financial crisis following the Lehmann Brothers collapse in 2008 Since 2009 capital flows to emerging markets are again at historical heights According to economic theory, free movement of capital across national borders is beneficial to all countries, as it leads to an efficient allocation of resources that raises productivity and economic growth everywhere Capital inflows to EMEs can help finance domestic economies and contribute to long-run economic growth Foreign portfolio inflows can provide a better opportunity for local capital market development, generally providing increased liquidity and price recovery mechanisms As a result, the economic performance of EMEs has recovered quickly after the financial global crisis in 2008 The stock market of China has gone up steadily until the middle of this year 2015 However, emerging markets will suffer a net outflow of capital in the year of 2015 for the first time since the 1980s as their economic fortunes darken and the US Federal Reserve prepares to lift interest rates Emerging nations were facing a fifth consecutive year of slowing growth, adding that an increase in US interest rates could exacerbate conditions in some leading economies The projection will heighten concerns about the prospects for leading emerging economies including China and Brazil The FED announced to withdraw the QE (quantitative easing) in Oct 29th, 2014 what meat that the United States already have enough ability and confidence to recovery their own economic The US economy created a lot more jobs in October than economists had forecasted This suggests that the US economy is getting stronger and, combined with upbeat comments made by the Fed after its September meeting, is causing more people to believe that there will be a rate rise in December With the next Federal Open Market Committee (FOMC) press conference scheduled for December 15, 16/2015 - only one week away, the effect of increasing in Fed’s interest rate on EMEs is one of the biggest concerns of the central banks and governments all over the world at the end of 2015 This article considers some important factors affecting the Fed’s decision on lifting the interest rate and analyses how an interest rate hike would influence on EMEs in the perspective on the financial capital outflow from emerging market The Fed’s interest rate policy will also largely impact the stock market, bond market, emerging market currencies, the euro/yen trading, gold and crude oil markets Nevertheless, the moving of hiking interest rate on the above markets is out of range of our topic This paper is divided into six sections as follows: The second section will mention the recent economic performance of EMEs, especially in five emerging markets Brazil, Russia, India China and South Africa (BRICS) The third section will observe the recent improvement of US economy and outline some important factors affecting the Fed’s decision on whether rising the interest rate or not The fourth section will provide how the global market factors outside US influence on the Fed’s decision The fifth section, also the main purpose of this article, is to analyze how an interest rate hike would afflict the EMEs The final section will summarize the paper The recent economic performance in EMEs First of all, we are going to overview the emerging markets and analyze their recent economic performance The BRICS will be the most important EMEs of our article Based on the recent economic performance in EMEs, we can predict the effects of increasing in Fed’s interest rate on emerging markets It was not too long ago that the emerging markets were regularly eulogized as the permanent powerhouses of the world economy During the 2000s, with excitable neologisms like BRICS coined in their honors, the big emerging economies drove a boom in global output and trade And when the rich world suffered a dislocating shock during the financial crisis in 2008, many middle-income nations, with relatively resilient banking systems and large foreign exchange reserves rode out the turbulence and rapidly resumed growing 2.1 Overview of EMEs In this section, we will examine the five largest economies in EMEs – BRICS In 2015, BRICS represents over billion people or 42% of the world population; as all five members are in the top 25 of the world by population, and four are in the top 10 The five nations have a combined nominal GDP of US$16.039 trillion, equivalent to approximately 20% of the gross world product, and an estimated US$4 trillion in combined foreign reserves The BRICS have received both praise and criticism from numerous commentators Bilateral relations among BRICS nations have mainly been conducted on the basis of non-interference, equality, and mutual benefit (win-win) It is estimated that the combined GDP (PPP) of BRICS would reach US$50 trillion mark by 2020 But as we know not all BRICS nations are doing well, China's economy is in constant decline from 2013 with its stock market reaches a new low in this September troubling global stock exchanges, this year China is expected to grow with 6.5% GDP which is way less than previous decade average GDP Slow in China's GDP is also troubling Brazil which was very much depended on China's trade This year, Brazil is expected to grow at -2.7% which is certainly not good for economy Similarly, Russia which is currently under numerous sanctions against it due annexation of Crimea, make it grow by -3.7% Same goes for South Africa which is expected to grow at rate of 3% this year Although India's GDP is 7.5% this year it was expected more before, but as of BRICS only India is growing as expected for BRICS countries 2.2 Recent performance in BRICS in detail China GDP Growth Weakest Since 2009 China GDP annual growth rate China is one of the biggest economies of the world, the Chinese economy was witnessing growth even in the wake of a weakened world economic scenario, but it has been slowing down gradually year after year since 2010 to 7.4% in 2014 The Chinese economy grew an annual 6.9 percent in the third quarter of 2015, slightly down from 7.0 percent expansion in the previous quarter, but narrowly above market expectations It is the slowest growth since the first quarter of 2009, mainly due to a slowdown in industrial output, sluggish property investment and a contraction in exports GDP growth of China (YoY) China Capital Flows China recorded a capital and financial account deficit of 63.40 USD HML in the third quarter of 2015 Capital Flows in China averaged 199.43 USD HML from 1998 until 2015, reaching an all time high of 1320.80 USD HML in the fourth quarter of 2010 and a record low of -945 USD HML in the first quarter of 2015 Russia Falls Deep into Recession Russia is the largest country in the world and the fifth largest economy The Russian economy is commodity-driven Russia is the world’s largest producer of oil (12 percent of world output), natural gas (18 percent) and nickel (20 percent) The energy sector is the most important, it contributes 20-25 percent of GDP, 65 percent of total exports and 30 percent of government budget revenue In 2014, following Russia's military intervention in Ukraine, prospects for economic growth declined further With its over reliance on energy and oil exports, Russia faces an 8.2 percent drop in output in 2015 and 6.4 percent in 2016, as a significant collapse in oil prices and western sanctions sent the economy into a sharp contraction The Russian economy shrank percent on quarter in the three months to June of 2015, the worst performance since the 2009 crisis The GDP shrank percent, the fourth straight quarter of contraction, following an upwardly revised 1.57 percent drop in the first three months of the year, revised data from the statistical office showed Year-on-year, the economy shrank 4.6 percent GDP growth of Russia (YoY) At the beginning of November 2015, The Russian Central Bank has abandoned its defense of the ruble and declared that it will make no further interventions to prop up the weakening currency The regulator’s decision resulted in a rapid slide by the ruble after that USDRUB Exchange Rate Brazilian Economy Falls into Deep Recession Brazil is the seventh largest economy in the world and the largest in Latin America In recent years, the country has been one of the fastest-growing economies in the world primarily due to its export potential The country’s trade is driven by its extensive natural resources and diverse agricultural and manufacturing production Also, rising domestic demand, increasingly skilled workforce along with scientific and technological development, have attracted foreign direct investment However, bureaucracy, corruption and weak infrastructure remain the biggest obstacles to economic development The Brazilian economy shrank 4.5 percent year-on-year in the third quarter of 2015, sixth consecutive contraction and the worse since modern records began in 1996 The GDP in Brazil shrank 1.7 percent on quarter in the three months to September of 2015, worse than market expectations Considering the first nine months of the year, the economy shrank 3.2 percent, the biggest fall ever GDP growth of Brazil (YoY) GDP growth of Brazil (YoY) South Africa Annual GDP Growth Slows to 1% The South African economy advanced percent year-on-year in the third quarter of 2015, easing from an upwardly revised 1.3 percent expansion in the previous period and lower than market expectations of a 1.3 percent rise It is the lowest growth rate since the 2009 recession due to a slowdown in manufacturing and finance, real estate and business services while agriculture and utilities contracted for the third straight quarter Year-on-year, the economy expanded percent, slowing from a 1.3 percent increase in the second quarter of the year and the lowest since the 2009 recession GDP growth of South Africa (YoY) India GDP Growth Beats Expectations The Indian economy expanded 7.4 percent year-on-year in the three months to September of 2015, following an upwardly revised 7.1 percent expansion in the second quarter Figures came better than market expectations of a 7.3 percent increase, boosted by financial, real estate and insurance activities and manufacturing GDP growth of India (YoY) In summary, most of the large EMEs are in a difficult economic situation Russian and Brazilian economies are falling into deep recession Chinese and South African economies have been contracting Although Indian economy is slightly expanding but Indian economy is presently operating in a very challenging environment partly because of worldwide economic weakness and partly due to some home grown factors Why is the Fed considering rising interest rates now? 3.1 The current performance of US economy Since the US economy is improving, it is widely expected that US Fed will raise the interest rates soon The US economy is showing some positive signs of the recovery such as GDP, unemployment rate, consumer price index in the third quarter of 2015 US economy has been improving The US economy is rebounding The Real GDP growth (based on 2009 dollars) grew by 3.7% during the second quarter and by 2.1% in 3nd quarter 2015 Consumer Price Index The primary concern of the US Fed is to achieve 2% inflation rate to achieve the sustainable GDP growth rate, otherwise the US can again slip into deflation For July 2015, the core inflation grew by 1.8% YoY, which is near the targeted inflation Even the last 12 months’ average core inflation is around 1.7%, which is also not so far from the targeted inflation Thus, core CPI inflation can reach the targeted 2% inflation rate in near term On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers increased 0.2 percent in October after decreasing 0.2 percent in September Unemployment rate is within the target range The second most important goal for US Fed is to keep unemployment rate between 5.2% - 5.5% in long-run In August 2015, the unemployment rate fell to 5.1% below the targeted long-run normal rate of unemployment of 5.2% - 5.5% of US fed In October and November 2015, the unemployment rate fell again to 5.0% as the table below In addition to that, the trailing 12 months unemployment rate is 5.5%, which is still satisfactory It is evident from the chart that the unemployment rate is falling after the 2008 financial crisis continuously and it’s near the 2008 levels before crisis 3.2 Current level of US interest rate The US was hit by the crash in its housing market and banking sector between 2007 and 2009 The Fed felt it needed to pull out all of the stops to prevent the economy from collapsing into a new Great Depression One way of keeping things afloat was by cutting the cost of borrowing to rock-bottom levels It's been nearly 10 years since the Federal Reserve raised its benchmark interest rate, and since December of 2008, the organization has kept the fed funds rate within a range of zero and a quarter percent 3.3 Why is the Fed considering rising interest rates now? With interest rates so low for so long, fed chair Janet Yellen, wary of acting too late and allowing inflation to spiral out of control, has been indicating that the Fed would move to raise rates sometime this year 2015 America has seen its longest private sector hiring spurt on record, and unemployment has halved since its peak The US economy created a lot more jobs in October than economists had forecasted This suggests that the US economy is getting stronger The Fed thinks the hot jobs market could spur a pickup in inflation and wages Given it is tasked with keeping inflation low, it is considering raising the cost of borrowing to keep the economy on an even keel How does the global market affect the Fed’s decision In theory, the Fed makes its decision on raising rates based on its appraisals of domestic economic issues However, with emerging markets accounting for 39 per cent of global GDP in nominal terms and 52 per cent in purchasing power parity terms, a US monetary policy that enfeebles emerging markets risks depressing global demand and therefore impacting US growth further down the line As a result, the turmoil in the global market and EMEs has puzzled the market whether the US Fed will increase interest rate this December or not The US Fed is also concerned about the slowing Chinese economy since it can drag the world into another recession The slowdown in Chinese economy A number of global economic events, most notably in China and emerging market as well, have given the Fed recent cause to worry that U.S growth could be hampered Chinese economy is slowing down Its domestic demand is reducing and exports are falling, along with the stock market turmoil in China In August, China devalued Yuan against US Dollar by 2% to boost its exports This devaluation has made US goods more expensive in global market, which could adversely impact US economy Fed has therefore worried that China’s growth slowdown will be worse than expected and will have negative impact on the recovery of US market In a specific sense, a Fed rate hike runs the risk of increasing the attractiveness of US-dollar assets relative to those denominated in Yuan, thus accelerating capital outflows from China and leaving Beijing with fewer resources to invest in US Treasury debt and this would create potential funding shortfalls for the US government China’s economy, however, is not the only one having a rough go of it Other developing economies have been slowing for a number of years with the International Monetary Fund (IMF) predicting that such emerging market economies will slow for the fifth consecutive year These weak global economic conditions that depress global demand may have spillover effects on the U.S economy 10 Falling Commodity Prices The commodity price has been falling because of slowing Chinese demand for commodity The fall in commodity prices, especially in crude oil, can hamper the US Fed from achieving 2% targeted inflation rate In addition, falling commodity prices will drag down the investments in commodity business Thus, hinder new jobs Slowing Global Demand The commodity driven economies like Australia, Brazil and Venezuela has already been severely impact by the falling commodity prices Thus demand in these economies will decline and eventually lead to slow down is global demand In addition, Euro Zone is still struggling to get out of deflation US Fed will closely watch the developments before hiking interest rates Pessimist’s thinks that the FED will severely suppressed the emerging markets and optimists believe the effects are exaggerated If that does happen, it will be the first US rate rise since 2006 It will bring a huge shock and impact to emerging markets Our subject is to analysis and predicts the effects of FED’s next move on the emerging markets How an interest rate hike would affect emerging market There are primarily two ways in which a Fed interest rate hike would affect the economies of emerging markets 5.1 Capital flight to quality Flight to quality is the action of investors moving their capital away from riskier investments to the safest possible investment vehicles This flight is usually caused by uncertainty in the financial or international markets And in this case, rising Fed’s interest rates would encourage further capital outflows from emerging markets and frontier-emerging market as investors turn to the safety of U.S markets with the promise of higher returns than has been experienced over the last number of years Emerging market governments and companies will feel the pinch as funds previously used for investment begin to dry up The Bank for International Settlements (BIS) said cross-border loans fell by $52bn in the first quarter, chiefly due to deleveraging by Chinese companies It estimated that capital outflows from China reached $109bn in the first quarter, a foretaste of what may have happened in August after the dollar-peg was broken 11 5.2 Triggering global debt crisis Debt ratios reaching extreme levels across all major regions The majority of emerging market debt is in U.S dollars, which has been attractive over the last number of years due to ultra-low interest rates If U.S rates rise, it could make many of these debts unsustainable Furthermore, that could cause borrowing costs to surge as investors worry about the ability of governments to pay their debts Governments could be forced to take on the debt of failing corporations that have bulked up on corporate bonds in the low-rate environment, especially as exchange rate values fall against the dollar In the immediate aftermath of the global financial crisis, emerging-market economies used government coffers to spend their way out of their problems Their efforts–coordinated with major government and central bank stimulus in advanced economies–helped juice the global recovery Strong growth in the lead up to the crisis meant many emerging markets had government budget surpluses But growth has been slowing in many emerging-market nations as they strain their ability to expand without major overhauls to their economies Now emerging-market balance sheets are largely in the red, with budget deficits expanding to levels not seen for a decade Debt ratios have reached extreme levels across all major regions of the global economy, leaving the financial system acutely vulnerable to monetary tightening by the US Federal Reserve, the 12 world's top financial watchdog has warned And BIS said total debt ratios are now significantly higher than they were at the peak of the last credit cycle in 2007, just before the onset of global financial crisis Combined public and private debt has jumped by 36 percentage points since then to 265 percentage points of GDP in the developed economies This time emerging markets have been drawn into the credit spree as well Total debt has spiked 50 points to 167 percentage points, and even higher to 235 percentage points in China, a pace of credit growth that has almost always preceded major financial crises in the past Adding to the toxic mix, off-shore borrowing in US dollars has reached a record $9.6 trillion, chiefly due to leakage effects of zero interest rates and quantitative easing in the US Dollar loans to EMEs have doubled since the Lehman crisis to $3 trillion, and much of it has been borrowed at abnormally low real interest rates of 1% Roughly 80% of the dollar debt in China is on shortterm maturities These countries are now being forced to repay money, though they not yet face the sort of 'sudden stop' in funding that typically leads to a violent crisis The BIS report said: “the rich countries have failed to right the ship over the last seven years or bring leverage back down to manageable levels Aggregate private debt has barely stabilized, let 13 alone started to correct downwards, even in the corporate sector And government debt continues to rise steadily, in a manner reminiscent of Japan’s trend deterioration in the 1990s" Britain, Spain, and the US have cut household debt ratios but this is still not enough to offset the massive jump in public debt since the Lehman crisis France has suffered the worst deterioration of any major country in the developed world, with total non-financial debt levels spiraling upwards by 75 percentage points to 291 percentage points, overtaking Britain at 269 percentage points for the first time in decades 14 What will happen if the Fed raises interest rates for the first time since 2006? A study on financial spillovers in the BIS report found that much of the global financial system remains anchored to US borrowing rates, whether or not countries have fixed exchanged rates or floating currencies, and regardless of normal theory on trade links and business cycles On average, a 100 point move in US rates leads to a 43 point move for emerging markets and open developed economies, with powerful knock-on effects on longer-term bond rates "We find economically and statistically significant spillovers," it said The grim implication is that emerging economies may face a monetary shock as rates ratchet higher, even if the liabilities are in their own currencies Enthusiasts for the 'BRICS' and mini-BRICS insist that today's EM squall is entirely different to the crises in the early 1980s and mid-1990s since the governments of these countries no longer borrow in dollars or hard-currencies - though their companies clearly do, and on a very large scale The BIS data suggests that this assumption may be complacent Emerging markets may just as vulnerable this time, and perhaps more so given the much greater stock of debt If the Fed raises interest rates in December 2015, the global debt crisis may be happening since then 15 Summary In conclusion, we have already seen the antecedents of the main impact: a stronger US dollar, backed by higher US interest rates, tends to depress the values of emerging market currencies at a time when many EM economies are already weakening and their currencies have already slumped against the greenback The Fed’s rate rise could exacerbate the EM currency turmoil, and even help precipitate a full-blown crisis A rate rise could yield a “shock” and a new crisis in emerging market Capital flight from emerging market to US market will be happened Thanks to the dangerously high debt ratio in US dollar associated with the strong devaluation of the emerging market’s currencies, an increase in Fed’s interest rate can trigger a global debt crisis in the near future 16 Preferences www.ft.com/home/uk http://data.worl dbank.org/ http://www.bl oomberg.com/ http://www.economonitor.com https://www.quora.com/ http://www.tradingeconomics.com/ http://www.thestreet.com/ http://www.investopedia.com/ Atish R Ghosh, Jun Kim, Mahvash Saeed Qureshi, Juan Zalduendo (2012), “Surges”, IMF Working Paper Bank for International Settlements (2009), “Capital flows and emerging market economies”, CGFS Papers Soyoung Kim, Doo Yong Yang (2008), “The Impact of Capital Inflows on Emerging East Asian Economies: Is Too Much Money Chasing Too Little Good?”, Working Paper Series on Regional Economic Integration No 15Asian Development Bank, Korea University & KIEP S Ahmed, A Zlate (2013), “Capital Flows to Emerging Market Economies: A Brave New World”, pp 2-3 Marcel Fratzscher (2011), “CAPITAL FLOWS, PUSH VERSUS PULL FACTORS AND THE GLOBAL FINANCIAL CRISIS”, pp 20-22 Massimiliano Cali, Isabella Massa and Dirk Willem teVelde (2008), “The Global Financial Crisis: financial flows to developing countries set to fall by one quarter”, Oversea Development Institute, UK Bruno Bonizzi (2013), “Capital flows to emerging markets: Institutional investors and the post-crisis environment”, pp 1-3 Luiz Fernando de Paula (July 2, 2015), “Financial Flows to Emerging Economies and Policy Alternatives in Post-2008”, pp Cardarelli, R, S Elekdag, and A Kose (2009), “Capital Inflows: Macroeconomic Implications and Policy Responses”, IMF Working Paper 09/40 Atish R Ghosh, Mahvash Saeed Qureshi (2012), “What drives surges in capital flows?” Cardarelli, R, S Elekdag, and A Kose (2009), “Capital Inflows: Macroeconomic Implications and Policy Responses”, IMF Working Paper 09/40 17 [...]... rate rise since 2006 It will bring a huge shock and impact to emerging markets Our subject is to analysis and predicts the effects of FED’s next move on the emerging markets 5 How an interest rate hike would affect emerging market There are primarily two ways in which a Fed interest rate hike would affect the economies of emerging markets 5.1 Capital flight to quality Flight to quality is the action... exchanged rates or floating currencies, and regardless of normal theory on trade links and business cycles On average, a 100 point move in US rates leads to a 43 point move for emerging markets and open developed economies, with powerful knock -on effects on longer-term bond rates "We find economically and statistically significant spillovers," it said The grim implication is that emerging economies may... action of investors moving their capital away from riskier investments to the safest possible investment vehicles This flight is usually caused by uncertainty in the financial or international markets And in this case, rising Fed’s interest rates would encourage further capital outflows from emerging markets and frontier -emerging market as investors turn to the safety of U.S markets with the promise of. .. financial crises in the past Adding to the toxic mix, off-shore borrowing in US dollars has reached a record $9.6 trillion, chiefly due to leakage effects of zero interest rates and quantitative easing in the US Dollar loans to EMEs have doubled since the Lehman crisis to $3 trillion, and much of it has been borrowed at abnormally low real interest rates of 1% Roughly 80% of the dollar debt in China... as investors worry about the ability of governments to pay their debts Governments could be forced to take on the debt of failing corporations that have bulked up on corporate bonds in the low -rate environment, especially as exchange rate values fall against the dollar In the immediate aftermath of the global financial crisis, emerging- market economies used government coffers to spend their way out of. .. Qureshi, Juan Zalduendo (2012), “Surges”, IMF Working Paper Bank for International Settlements (2009), “Capital flows and emerging market economies , CGFS Papers Soyoung Kim, Doo Yong Yang (2008), “The Impact of Capital Inflows on Emerging East Asian Economies: Is Too Much Money Chasing Too Little Good?”, Working Paper Series on Regional Economic Integration No 15Asian Development Bank, Korea University... credit cycle in 2007, just before the onset of global financial crisis Combined public and private debt has jumped by 36 percentage points since then to 265 percentage points of GDP in the developed economies This time emerging markets have been drawn into the credit spree as well Total debt has spiked 50 points to 167 percentage points, and even higher to 235 percentage points in China, a pace of credit... Falling Commodity Prices The commodity price has been falling because of slowing Chinese demand for commodity The fall in commodity prices, especially in crude oil, can hamper the US Fed from achieving 2% targeted inflation rate In addition, falling commodity prices will drag down the investments in commodity business Thus, hinder new jobs Slowing Global Demand The commodity driven economies. .. Their efforts–coordinated with major government and central bank stimulus in advanced economies helped juice the global recovery Strong growth in the lead up to the crisis meant many emerging markets had government budget surpluses But growth has been slowing in many emerging- market nations as they strain their ability to expand without major overhauls to their economies Now emerging- market balance sheets... impact by the falling commodity prices Thus demand in these economies will decline and eventually lead to slow down is global demand In addition, Euro Zone is still struggling to get out of deflation US Fed will closely watch the developments before hiking interest rates Pessimist’s thinks that the FED will severely suppressed the emerging markets and optimists believe the effects are exaggerated If that ... an increase in US interest rates could exacerbate conditions in some leading economies The projection will heighten concerns about the prospects for leading emerging economies including China... Based on the recent economic performance in EMEs, we can predict the effects of increasing in Fed’s interest rate on emerging markets It was not too long ago that the emerging markets were regularly... Open Market Committee (FOMC) press conference scheduled for December 15, 16/2015 - only one week away, the effect of increasing in Fed’s interest rate on EMEs is one of the biggest concerns of