“We are not too worried about spillover effects from emerging markets turmoil to US economy. This should not be misunderstood as optimism about the EM economies with the largest imbalances, where we worry that the economic adjustments are still in full swing. But the exposure of the US economy to EM–and particularly to the most troubled EM countries–is relatively small, whether we look at trade links or financial links. There is respectable case to be made that biggest EM impact on growth rate of US exports and GDP is already behind us. It is noteworthy that EM domestic demand growth has already declined from 8.5% in 2010 to 5.1% in 2013, with only limited effects on DM and especially the US.” (Goldman Sachs)
Countries with large current account deficits have been particularly hard hit by currency depreciation. These countries must now address growing structural imbalances just when they are facing tighter financial conditions. On top of this, local currency depreciation add to domestic inflationary pressures at a time of slowing growth momentum.
“The Fragile Five”: India, Indonesia, Turkey, Brazil, South Africa.