The global economy is facing great challenges and disorders as a result of fluctuations in the markets and economic policies in a number of countries in the world; The slowdown in the growth of the Chinese economy, the second largest economy in the world is considered the most notable reason of it that the stock prices have tumbled , and hit emerging economies, decreased of commodity prices and Oil prices have collapsed, and as a result of Fed decision ( Federal reserve council ) of the interest rate which increased the suffering of emerging economies , something which has increased the global economic turmoil.
The challenges of emerging economies
Emerging economies is one of the most important factors to push the global economy , a major factor in its balance, as these economies contribute to more than two-thirds of global growth, and the emerging economies include huge countries and other small, and these economies gained its name from being based on development programs so the emergence is associated with public policy and a comprehensive strategy for the development .
As mentioned earlier, a global economic slowdown and its crises formed a good opportunity for countries with emerging economies, noting that it was the biggest beneficiaries of the consequences of the global financial crises, as these countries are considered the optimized destination for capital and investment because of the lack of the risks that exist normally in the major industrialized countries, and emerging countries managed by the virtue of this to attract huge amounts of foreign exchange to their economies since the global financial crisis in 2008, and benefited from it to push growth rates and increase their reserves and to support their currencies, but in contrast, the negative impact of flows of capital coming is the growing of the external debt of these countries.
The emerging economies saw exodus of capital and investors because of fears of the slowing of global economic growth, Institute of International Finance stressed that emerging markets suffered from the conservative exodus that the value of conservative of emerging countries in the last January, reached about $ 3.6 billion, to continue its losses for the seventh month in a row with the decline in investors’ appetite for high-risk assets in the light of renewed fears of a slowdown in global growth.
Institute adds that the equities of emerging market saw the exodus of 8.9 billion euro, while emerging bond markets attracted at $ 5.3 billion.
According to economic reports that the Asian emerging markets have seen, the largest exodus amounted to $ 4.3 billion, while Latin America attracted flows amounted to $ 4.2 billion.
The high Interest rates will cause to move problems to emerging countries, which the lack of revenue in these countries will force the capital to escape in search for higher returns, also will cause for the failure of these countries to repay debt and thereby reduce its credit rating.
In the midst of instability experienced by the global economy, The credit rating agencies to accelerate the reduction of its estimates for companies in the emerging economies, while foreign investors abandoned riskier stocks.
The Christine Lagarde , Director of the International Monetary Fund warned that the risk will lead to more volatility in the financial markets. Lagarde, predicted that the slowdown by 1% in emerging markets may cause the weakening of growth in developed countries by about 0.2 percentage points.
Economists divided the debt of emerging countries into two parts; sovereign debt on , governments, and the debt of private companies, many companies in emerging countries adopted to issue bonds in foreign currency to finance the expansion and basic operations. Of course, when foreign exchange is declining for these companies the positions of the debt risks rise, and this is what is happening in these countries, and observers argue the coming crisis of corporate debt in emerging countries to represent the third wave of the current financial crisis, which its first is represented in the housing market crisis in the United States, Second, in the sovereign debt crisis of some European countries .
Banking experts believe that any lifting of the interest of the US Federal point of this year, will increase the suffering of the emerging economies will lead to the escape of investments and capital from these countries such as economies of ; China, Japan and Europe to America. Such immigration has got in the middle of 2014, from the zone of the euro to Switzerland.
The need to meet the challenges
In fact, emerging economies are facing a great challenge and with a lower exchange of currencies in emerging countries and rising US interest rates, which contributed to the strength of the dollar, it would be difficult for the economies of these countries to serve this debts because the interest on it will rise.
In these harsh economic conditions, the international support must be provided to the emerging economies to overcome the difficult conditions experienced by it that threaten its future, and based on this , it has become necessary to carry out the structural reforms to boost growth, and on the decision-makers to maintain the monetary policy and the use of fiscal policy, in order to attract investment and re-displaced investments, and install the currencies values of these economies , and raise work efficiency, and levels of production within it, and it remains on the developed countries, especially the United States, to take a position more moderate in its economic policies, which have a negative impact on these economies, and contribute to address the crises of the world economy and imbalances taking place in emerging markets and avoid obstacles slowing of the growth of these economies.
Rawabet Center for Research and Strategic Studies