Global growth has slowed substantially and a quick recovery seems unlikely, according to IMF experts. Coming off 2015’s modest 3.1 percent global growth, the impact of the worldwide slowdown affects every nation. But the negative effects are most apparent in emerging market economies.
Emerging markets are experiencing profound losses that can be detrimental to already unstable infrastructures. With a lower margin for error, these countries are at far greater risk for economic turmoil.
At times, this is just the nature of the volatility of global markets. In the past year, however, significant changes in emerging market economies have erupted from singular global events. The following six are among the most impactful:
While the Taper Tantrum was known for its ground-shaking effects on emerging market economies, Britain’s decision to leave the European Union might have even larger ramifications.
Within the EU, the countries that hurt the most were in the CESEE (the Central, Eastern and South Eastern European). These countries, which include Turkey, Poland, and the Ukraine, experienced an average initial drop of 4.1% in their stock markets, compared to just 2.6% for non-CESEE nations.
But the EU’s far-reaching influence disrupted economies across the world. Mexico and South Africa were particularly impacted. The long-term effects of Brexit remain to be seen.
- Paris attack
After 129 people were killed in the tragic November 2015 Paris attacks, the economic aftershocks quickly followed. Emerging economies took the brunt of it; stock prices fell to a 6-week low in wake of the attacks, according to the MSCI Emerging Market Index.
The potential lasting effect is the decrease in European tourism. Following a string of terrorist attacks in previous years, France is now perceived as a target country for terrorism. This has global implications, and stock prices for airlines in Asia have faltered in the face of rising uncertainty regarding the stability of France and Europe as a whole for tourism. Turkish Airlines also suffered a 2.6 percent loss.
- Dropping global oil prices
In June 2014, oil prices reached $115, and global trade saw its share of winners and losers. In February 2016, oil fell below $35 a barrel. Emerging market economies now find themselves in the latter camp, given the export-centric nature of their economies. Oxford economics have resulted in seven other nations teetering in the red zone, among them Nigeria, Iraq, and Angola.
- Fed raising interest rates
In December 2015, the Fed raised their interest rates for the first time in nearly a decade. The plan was to stimulate the U.S.’s recovery from the financial recession.
But after the announcement, emerging markets reacted differently than expected. Many benefited from the move, among them India. The head of The Reserve Bank of India claimed that it has helped “take a little bit of pressure off.”
Other nations, like Mexico, felt differently. Combined with their recent internal financial struggles, the peso hit an all time low in early 2016.
- Brazil’s impeachment and China’s slump
After a long impeachment process, Dilma Rousseff is out of office, but the damage has been done. With a budget deficit and growing inflation, Rousseff failed to employ any initiatives to improve the struggling economy, and the impeachment process further delayed any counteractive measures. Now the Brazilian economy has entered into what some are calling a depression, with its GDP plummeting 9.7% in the last nine quarters.
In addition to the drain on the domestic economy, Brazil’s slump is tied with China’s diminishing need for Brazilian exports, especially agricultural goods and raw materials. China is Brazil’s largest trading partner, and the combination of these global events has led to a shrinking Real in the early part of the 1st Quarter. The Real has recovered a bit since February of 2016.
- The Turkish coup
Tourism in Turkey is plummeting, due to recent political instability over a coup that left over 200 people dead. Surprisingly, recent airport terrorist attacks did not leave as much of an impact on the economy.
These troublesome months for Turkey culminated in the FAA banning flights between Turkey and the United States. While the ban has already been lifted, the resulting blow hit Turkey’s economy and tourism industry so hard that it may take many years for the country to recover.
Shaking the global economy
Analysts who were optimistic about the growth of the global economy in 2017 have changed their tunes since Brexit. And as Japan has already seen, any stimulus plan in the wake of Brexit may lead to unintended results.
Recent political and social upheaval in several key countries has damaged the global economy over the past year. And it’s a compounding problem.
Fixing broken economies calls for increased stability and integrity worldwide. In order to thrive as a global economy, more emphasis must be put on unifying nations, through trade and peace agreements.
Separation, deception, and acts of terror, only work to further fracture an already shaky global economy.
Disclosure: Ping Capital has postion in China, Latin America, and Europe