Are commodity exporters in trouble?
Growth in emerging economies fell in 2015, compared to 2014, because of a fall in commodity prices. This led to a hard landing for commodity exporters like Russia and Latin American economies.
The demand from advanced economies hasn’t risen yet. As a result, the growth in emerging economies is expected to remain patchy. Nations that aren’t overly dependent on exports, commodity exports in particular, will fare better than nations that depend on them.
The recent slowdown in the Chinese economy has put the fortunes of emerging nations in jeopardy. Several of the countries have close economic ties with China.
Policy reforms, including fiscal and structural reforms, are expected to bring capital inflows to starved sectors like manufacturing and infrastructure. This can be helpful at a time when several emerging economies are witnessing a fall in capital inflows. Domestic demand is also expected to be a key growth driver for India (EPI).
China’s economic slowdown isn’t the elephant in the room anymore. Researchers aren’t debating about whether China (MCHI) is slowing down. Instead, they’re debating about the pace of the slowdown and how long it’s expected to last.
In an attempt to boost its exports, the PBOC (People’s Bank of China) devalued the yuan against the US dollar for an unprecedented three consecutive days in mid-August. At the same time, China has aggressively reduced its imports. If this isn’t enough to support its slowing economy, policymakers will have limited tools to bolster economic growth.
Brazil and Russia
Both of these commodity exports are expected to bear the brunt of falling commodity prices. Economic growth in Brazil will continue to remain subdued until its exports, especially to China, don’t rise. Russian energy companies like Gazprom (OGZPY) have already taken the brunt of falling energy prices. Economic sanctions are continuing to put downward pressure on economic growth.
The IMF (International Monetary Fund) staff describes monetary policy tightening in Brazil as “needed.” As a result, it expects domestic demand to weaken. The agency isn’t positive about domestic investments in the country either.
Both countries are expected to contract in 2015. Spillovers will likely be seen in 2016 as well.
Next, we’ll discuss the second key agenda point at the G20 Summit—monetary policy.