THE ECONOMY IN 2012
Emerging markets have performed amazingly well over the last seven years. In many cases, they have far outperformed the advanced industrialised countries in terms of economic growth, debt-to-GDP ratios, counter-cyclical fiscal policy, and assessments by ratings agencies and financial markets.
As 2012 begins, however, investors are wondering if emerging markets may be due for a correction, triggered by a new wave of "risk off"' behaviour. Will China experience a hard landing? Will a decline in commodity prices hit Latin America? Will the European Union's sovereign-debt woes spread to neighbours such as Turkey? Indeed, few believe that the rapid economic growth and high trade deficits that Turkey has experienced in recent years can be sustained. Likewise, high GDP growth rates in Brazil and Argentina over the same period could soon reverse, particularly if global commodity prices fall _ not a remote prospect if the Chinese economy begins to falter or global real interest rates rise this year.
China, in turn, could land hard as its real-estate bubble deflates and the country's banks are forced to work off the bad loans.
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