Quotes: MENA   Enter Symbol: NewsLetter: Search: advanced

QNB Group Emerging Markets Continue to Suffer from QE Tapering  Join our daily free Newsletter

MENAFN Press - 02/02/2014
No. of Ratings : 0
Add to Mixx!



(MENAFN Press) Since the announcement by the US Federal Reserve (Fed) of the gradual reduction of its asset-purchasing program-the so-called tapering of Quantitative Easing (QE)-emerging markets (EMs) have witnessed large capital outflows, a strong weakening of their currencies and reduced growth prospects. These negative trends are unfortunately expected to continue in 2014 with the Fed's implementation of QE tapering, leading to lower economic growth, tighter macroeconomic policies and possible disruptions in the balance of payments (BOP) of selected countries.



The Fed announcement on May 18, 2013 of QE tapering and the start of its implementation in January 2014 have led to a sudden reversal of EM capital flows. What had been the preferred destination of global capital in search for higher yields in the last few years suddenly became the emergency exit investors wanted to rush through. As a result, around USD100bn were withdrawn from EM bonds and equities funds in the last eight months of 2013, based on data from EPFR Global. This led to a large weakening of EM currencies, a tightening of macroeconomic policies and a slowdown in economic activity.



Five countries have been particularly affected by this sudden reversal of EM capital flows, given their large current-account deficits: Brazil, India, Indonesia, South Africa and Turkey. This group, called the Fragile Five, has seen the largest weakening of their currencies and the biggest impact on economic activity



Fragile Five Currencies vs. USD, 2013-1



(Index, Jan. 1, 2013 = 100





Source: Bloomber

These trends are unfortunately likely to continue in 2014. As the Fed gradually implements QE tapering during the year, additional capital is likely to flow out of EMs and be redeployed in advanced economies. This will put further pressure on EMs to tighten their fiscal and monetary policies and lead to lower economic growth.



In 2013, Brazil witnessed its largest capital outflows for ten years. This resulted in a significant weakening of the Brazilian Real. The authorities responded with an aggressive tightening of monetary policy, pushing interest rates into double digits. As a result, the economy went into recession in the third quarter of 2013 and all coincident indicators point to a further decline in the fourth quarter. In 2014, further pressures on the exchange rate may lead to additional tightening of interest rates and a slow recovery in economic activity, notwithstanding the FIFA 2016 World Cup. As a result, QNB Group forecasts Brazil's real GDP growth of 1.0%-1.5% in 2014



India's experience to-date with capital outflows has been better than other emerging markets. Skillful central bank policies have successfully stabilized the Indian Rupee since October 2013 without the aggressive interest rate hike witnessed in Brazil. Instead, the authorities have curbed imports of gold and increased the incentives for sugar exports to reduce the current-account deficit. However, India's central bank did raise its policy rate by 25 basis points as EM currencies came under renewed pressure in thelast week of January. Real GDP growth was probably just below 5.0% in 2013, although the momentum has been slowing, reflecting tighter domestic liquidity and a slowdown in consumer confidence and investment. We therefore forecast Indian real GDP growth in the 4.0%-4.5% range in 2014.




Indonesia has witnessed substantial capital outflows in 2013. As a result, the Rupiah has lost almost a quarter of its value against the USD. The authorities have so far been unable to stem the outflow despite a significant rise in interest rates as demand for imports remains robust. Investment has slowed but private consumption remains strong on the back of a growing middle class. As a result, real GDP growth has slowed only moderately to an estimated 5.5% in 2013. We forecasts Indonesian real GDP growth to slow down further to 5.1% in 2014.



Amongst the Fragile Five, South Africa has witnessed the largest weakening of its currency to date (33%). This reflects both the largest current-account deficit (6.8% in Q3 2013) and one of the lowest real GDP growth rates (1.8% in Q3 2013) on declining exports and domestic labor disruptions. The South African Reserve Bank refused to increase interest rates until late January 2014 (the first hike in six years), letting the currency fall instead. However, the increase in interest rates did little to support the currency, which continued to weaken, as the move was presented by the central bank as a one-off measure. The prospects for 2014 remain modest on continued weakness of commodity exports and further social tensions. As a result, QNB Group expects South African real GDP growth to remain in the 1.5%-2.0% range for 2014. Additional capital outflows are likely to lead to a further weakening of the South African Rand



Finally, Turkey has experienced a rapid outflow of capital and a sharp weakening of the Turkish Lira (27%) as political tensions increased. In the January monetary policy meeting, the central bank elected to keep interest rates on hold. However, this was followed by a sharp weakening of the Lira, prompting the central bank to call an emergency meeting last week, when it decided to more than double its benchmark interest rate. The economy has been relatively unscathed in 2013, with real GDP growth estimated at 3.7%. However, the rapid weakening of the currency is likely to shake investor confidence further. As a result, we project Turkish real GDP growth will slow to a range of 2.0%-2.5% in 2014.



Overall, the outlook for the Fragile Five countries in 2014 is mixed. The sudden reversal in capital flows associated with QE tapering has tested the ability of the authorities to tighten policies while limiting the impact on economic growth. The experience to date suggests that only India has been able to do so successfully, while Brazil, Indonesia, South Africa, and Turkey are still struggling with stabilizing their currencies. Going forward, the implementation of QE tapering will continue to put pressure on EMs to reduce their current-account deficits in line with available financing. This will inevitably have a negative impact on growth prospects





About QNB Group
QNB Group

 


MENAFN Press




  MENA News Headlines
 May 3 2016 - Saudi- President of Turkmenistan Performs UmrahSaudi Press Agency
(MENAFN - Saudi Press Agency) Makkah Rajab 26 1437 May 3 2016 SPA -- President Gurbanguly Berdimuhamedov of Turkmenistan and his accompanying delegation performed Umrah rites heree yesterday. At ...

 May 3 2016 - Saudi- Turkmenistan's President Arrives in MadinahSaudi Press Agency
(MENAFN - Saudi Press Agency) Madinah Rajab 26 1437 May 03 2016 SPA -- President Gurbanguly Berdimuhamedov of Republic of Turkmenistan arrived in Madinah today to pay a visit and pray at the ...

 May 3 2016 - Saudi- Turkmenistan's President Leaves MadinahSaudi Press Agency
(MENAFN - Saudi Press Agency) Madinah Rajab 26 1437 May 03 2016 SPA -- President Gurbanguly Berdimuhamedov of Republic of Turkmenistan left Madinah today. At Prince Mohammed bin Abdulaziz ...

 May 3 2016 - Saudi- Custodian of the Two Holy Mosques Receives President of Burkina Faso Holds Luncheon in his HonorSaudi Press Agency
(MENAFN - Saudi Press Agency) Riyadh Rajab 26 1437 May 3 2016 SPA -- The Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud received at Al-Yamamah palace here today President Roch ...

 May 3 2016 - Stuttgart Germany Rajab 26 1437 May 03 2016 SPA -- A US soldier has been killed in fighting near the Iraqi city of Erbil US Defence Secretary Ash Carter said Tuesday during a visit to the southern German city of Stuttgart dpa reported.Saudi Press Agency
(MENAFN - Saudi Press Agency) The soldier who was part of the US-led military coalition against the ISIS extremist group died in combat but the exact circumstances of his death are not yet known ...

 May 3 2016 - Qatar- A hot day with temperature approximately 40 degreeThe Peninsula
(MENAFN - The Peninsula) Doha: The weather forecast for Qatar valid until 6pm Tuesday inshore will be hot during the day with slight dust at places at times and some clouds offshore will be hazy ...

 May 3 2016 - UAE- Jafza s trade with Netherlands reaches US732 millionEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) DUBAI 3rd May 2016 (WAM) -- The number of Dutch companies represented in the Jebel Ali Free Zone Jafza has grown steadily over the past few years up to 105 ...

 May 3 2016 - Saudi FM warns of dangerous situation in SyriaEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) GENEVA 3rd May 2016 (WAM) -- Saudi Foreign Minister Adel Al Jubeir warned of the danger of the situation in Syria pointing out that unless there was a ...

 May 3 2016 - Oil price upward trend to continue: Kuwait Petroleum InternationalEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) BRUSSELS 3rd May 2016 (WAM) -- Bakheet Al-Rashidi President and CEO of Kuwait Petroleum International KPI also known as Q8 has said that the recent upward ...

 May 3 2016 - UAE- Children's National Medical Centre shares innovative insights in the treatment and diagnosis of cerebral palsy at Latifa HospitalEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) DUBAI 3rd May 2016 (WAM) -- A multi disciplinary team consisting of a paediatric physiatrist paediatric occupational therapist and paediatric physical ...

 May 3 2016 - Kuwait Cabinet condemns Syrian regime s airstrikes on civilian targets in AleppoEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) KUWAIT 2nd May 2016 (WAM) -- The Kuwaiti Cabinet has condemned the Syrian regime's continued airstrikes on civilian gathering places residential areas and ...

 May 3 2016 - Pope Francis Joe Biden praise efforts of UAE and Sultan Bin Khalifa Humanitarian and Scientific FoundationEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) ROME 3rd May 2016 (WAM) -- Pope Francis has praised the United Arab Emirates and the Sultan bin Khalifa Humanitarian and Scientific Foundation for their ...

 May 3 2016 - UAE- FNC delegation arrives in Amman to participate in WIP Global SummitEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) AMMAN 3rd May 2016 (WAM) -- Dr. Amal Abdullah Al Qubaisi Speaker of Federal National Council FNC has arrived in Jordan at the head of the UAE delegation to ...

 May 3 2016 - Lana Nusseibeh highlights UAE's crucial contributions on multilateral global issues at the UNEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) ABU DHABI 3rd May 2016 (WAM) -- Lana Nusseibeh Permanent Representative of the UAE to the United Nations has said that effective multilateral diplomacy ...

 May 3 2016 - UAE- RAK Ruler receives Bangladeshi Consul-GeneralEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) RAS AL-KHAIMAH 3rd May 2016 (WAM) -- H.H. Sheikh Saud bin Saqr Al Qasimi Supreme Council Member and Ruler of Ras al-Khaimah today received at his office in ...

 May 3 2016 - UAE- Amal Al Qubaisi meets former Vice President of European ParliamentEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) BRUSSELS 3rd May 2016 (WAM) -- Dr. Amal Abdullah Al Qubaisi Speaker of the Federal National Council FNC and Silvana Koch-Mehrin former member of the ...

 May 3 2016 - UAE- Minister of Infrastructure Development issues decision on total tonnage of shipsEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) ABU DHABI 3rd May 2016 (WAM) -- Dr. Abdullah bin Mohammed Belhaif Al Nuaimi Minister of Infrastructure Development Chairman of the Federal Transport ...

 May 3 2016 - UAE- Arab Interior Ministers Council calls for reconsideration of traffic safety strategiesEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) TUNISIA 3rd May 2016 (WAM) -- The Arab Interior Ministers Council has called for the reconsideration of Arab strategies programmes and plans to tackle the ...

 May 3 2016 - Maktoum bin Mohammed honours winners of Dubai Quality AwardEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) DUBAI 3rd May 2016 (WAM) -- H.H. Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum Deputy Ruler of Dubai and H.H. Mansour bin Mohammed bin Rashid Al Maktoum ...

 May 3 2016 - Jawaher Al Qasimi praises UAE's wise leadership for supporting children s rights and cancer patientsEmirates News Agency (WAM)
(MENAFN - Emirates News Agency (WAM)) SHARJAH 3rd May 2016 (WAM) -- H.H. Sheikha Jawaher bint Mohammed Al Qasimi Wife of H.H. the Ruler of Sharjah and Chairperson of the Supreme Council for ...

more...


 






Google

 
 

Middle East North Africa - Financial Network

MENAFN News Market Data Countries Tools Section  
 

Middle East North Africa - Financial Network
Arabic MENAFN

Main News
News By Industry
News By Country

Islamic Finance News
Private Equity News

How-To Guides
Technology Section

Travel Section

Search News

Market Indices
Quotes & Charts

Global Indices
Arab Indices

Commodoties

Oil & Energy

Currencies Cross Rates
Currencies Updates
Currency Converter

USA Stocks
Arab Stocks
 

Algeria 
Bahrain 
Egypt 
Iraq
Jordan 
Kuwait 
Lebanon
Morocco 
Oman 
Palestine
Qatar 
Saudi Arabia 
Syria
Tunisia 
UAE 
Yemen

Weather
Economic Calendar
Financial Glossary


Financial Calculators

RSS Feeds [XML]

Corporate Monitor

Events

Real Estate
Submit Your Property

Arab Research
Buy a Research

Press Releases
Submit your PR

Join Newsletters


 
© 2014 menafn.com All Rights Reserved.  Terms of Service | Privacy Policy | Contact Us | Advertise | About MENAFN | Career Opportunities | Feedback | Help