Economic fragility and financial vulnerability
Efic’s latest edition of World Risk Developments reviews a range of risks to the global economic outlook — including financial vulnerabilities in emerging markets and a Greek debt default. Yet improving prospects for Iranian sanctions relief provides some upside for exporters.
‘The IMF has warned of a prolonged period of low global growth, led by emerging markets’, says Efic’s senior economist Cassandra Winzenried.
‘While risks to growth have receded since October, the IMF cautions that risks to global financial stability have risen’, says Winzenried. ‘In particular, a “super taper tantrum” could result from the Fed’s upcoming rate hikes’.
According to Winzenried, ‘Emerging markets are increasingly vulnerable to higher US interest rates, given a growing exposure to US dollar-denominated corporate debt’.
‘The risk of a Greek debt default is also intensifying’, says Winzenried. ‘Greece’s exit from the eurozone would have severe negative repercussions on financial markets and global demand — and serious implications for Australian exporters’, she adds.
Providing some good news, Iran and six world powers have agreed the terms of a deal to curb Iran’s nuclear program in return for sanctions relief.
‘A rollback of sanctions would spur Iran’s economy and oil exports — exerting downward pressure on global oil prices and spurring Australia’s exports to this large and diversified market’, says Winzenried.
Also, after four years of turmoil, a ‘new economic vision’ and ambitious reform program has improved Egypt’s economic prospects. ‘Last month’s Economic Development Conference reportedly yielded $60 billion in investment contracts and pledges’, says Winzenried.
This month’s edition also covers political unrest in Bangladesh — which could jeopardise Australian agricultural exports — and the potential benefits of thawing Cuban-US relations.
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Photo credit: © Brendan Smialowski / REUTERS / PICTURE MEDIA