Interest rate rise: emerging markets set to feel the wrath

For policymakers in emerging markets, the prospect of the US Federal Reserve raising interest rates for the first time since 2006 has been building for much of the past two years. Since the great recession, EMs saw growth soar, partly in response to US borrowing costs at historic lows, then fall back as the Fed moved to tighten even as Chinese growth slackened. Now, against a backdrop in which developed economies account for less than half of world GDP by some measures, the question is whether the US and other industrialised countries will suffer from the fallout from a further EM slowdown caused by a Fed rate rise. “First we had the spillover phase,” says Mohamed El-Erian, chairman of US President Barack Obama’s Global Development Council. “This was the inability of the west to generate growth and its use of experimental monetary policies, which have undermined growth in EMs. “Stage two is the spill back — the weakness in EMs that disrupts the economies of the west and makes its challenges even harder.” Click (VIEW LINK) for full article