MacroeconomicIssuesandVulnerabilitiesintheGlobal.ppt

Major macro and financial events of the last 30 years: Emerging markets Argentina currency and financial crisis and default of 2001-2002 Financial/currency crisis in Uruguay in 2002 Risk of a financial crisis in Brazil as October 2002 elections were looming.? Financial recovery after the election. Weak economic performance of Latin America in 2003 with growth recovery in 2004-2005. Accession of 10 emerging markets (mostly transition economies) to the European Union in 2004. Rapid growth of emerging market economies in 2004-2006 on the back of macro/financial reforms and benign global conditions (high global growth, high commodity prices, low G7 interest rates). International investors rediscover emerging markets. Boom in commodity prices exported by EMs. 2006-2007: Africa as the new EMs growth story and asset class? Turmoil in EM financial markets in May-June 2006, especially for countries with external vulnerabilities Bubbly equity markets in EM especially in China, India and Gulf states Contagion of the US financial crisis to emerging market economies in 2008-2009. Strong V-shaped recovery of EM in 2010-2012 given stronger fundamentals Slowdown and financial pressures in EM starting in 2013 and into 2014-15:slowdown of China, end of commodity super-cycle, Fed talk about tapering, policies reducing potential growth Risks of financial crises in fragile EM in 2015-2016? Economy (in the GFC) This was both a liquidity crunch and a credit crunch the driven by serious solvency problems given over-leverage of households, financial institutions and parts of the corporate sector The myth that the rest of the world could decouple from the US recession was shattered in 2008: there was massive re-coupling first in financial markets and then in the real economy. Recession in most advanced economies (US, Eurozone, Japan); recession or massive growth slowdown in emerging market economies) The Great Recession of 2008-09 bottomed out in late 2009 when most economies started to reco