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11 Feb 2019, Guy Dunn

New year, new hope…

There is no doubt that 2018 was a difficult year for emerging market economies. A series of interest rate rises by the US Federal Reserve and the initiation of a trade war between the US and China applied the brakes to economic growth for many economies.

2019 is beginning to look a little different. The Fed has signalled that it is pausing its “quantitative tightening” policy in response to lower than expected inflationary pressure and external risks such as Brexit and a China slowdown. In turn, pressure has eased on emerging market central banks to raise rates to counter the rise of the dollar. In fact, most emerging markets have already seen their currencies strengthen considerably in the early weeks of 2019.

All of this has led to the Institute of International Finance to suggest that “a wall of money” could be heading the way of emerging markets. Other commentators have expressed optimism that an agreement can be reached on trade with China under particular pressure to resolve an issue that has been hurting its economy.

As always, risks remain high and there is no guarantee that the currently benign conditions will endure. Nevertheless, 2019 has already brought a renewed sense of optimism around the prospects for emerging markets. Original source: EMIS