While central banks of developed countries continued their aggressive tightening cycle to combat rising inflation, recession expectations for the US and the Euro Zone were further strengthened. Analysts examining this situation expect emerging market economies to be negatively affected by the slowdown in global growth. A group of global market players, on the other hand, think that emerging market countries can take advantage of the energy crisis.
Speaking to Bloomberg HT Deutsche Bank Middle East and Eastern Europe Research Manager Christian Wietoska evaluated the opportunities and risks posed by emerging markets.
“IT IS VERY DIFFICULT FOR SOME COUNTRIES WITH DEVELOPING MARKET ECONOMIES TO MAKE A SOFT LANDING”
Regarding the risks posed by global inflation and high energy prices in emerging markets, Wietoska said that this period will be tough for emerging markets in general. Stating that the situation is more challenging especially for countries with high external financing needs and relatively low foreign exchange reserves, Wietoska said that when we look at the past, periods when the dollar was strong had a negative impact on emerging markets.
Wietoska said, “The biggest risk for emerging market countries is that inflation is far above the target rate,” adding that these countries will have to make a choice on the side of growth by raising interest rates. Wietoska said that emerging market countries are trying to avoid a hard landing, but that the probability of a soft landing is “really very difficult”.
“THIS PERIOD IS OPPORTUNITY FOR ENERGY EXPORTING DEVELOPMENT COUNTRIES”
Referring to the opportunities that may arise in some countries with emerging market economies, Wietoska said, “Due to the high energy prices, this period presents an opportunity for energy exporting developing countries. There has been a transition from natural gas to LNG in the recent period. This situation includes Qatar, Malaysia, Oman, It gives advantages to countries such as Egypt, Nigeria and Indonesia,” he said.
EASTERN EUROPE, THE MOST VULNERABLE REGION FOR CURRENCY
With the Ukraine War, Eastern Europe is considered the most sensitive region in terms of currencies in emerging markets. Evaluating when the expectation of the decline in Hungarian forint, Polish zloty and Czech Koruna will end, Wietoska said that this situation depends on the war in Ukraine and the energy crisis.
Explaining that the current account balance dynamics were adversely affected due to geopolitical risks in this region, Wietoska stated that corporate-based direct investments remained more limited during the last few quarters. Wietoska said that many companies are due to uncertain circumstances. “wait and see” stressed that it is continuing its strategy.
Wietoska, in his evaluation of the Czech Koruna, stated that the Czech Central Bank kept the policy rate low and used different instruments to solve the inflation problem instead of increasing interest rates.
Stating that the situation is the opposite for Hungary, Wietoska said that the country’s local currency, the forint, has lost value in the last few months and is under great pressure. “The positive thing for the Hungarian forint is that the central bank is determined to raise interest rates to stabilize the currency,” Wietoska said.
On the Polish side, Wietoska stated that the central bank is still raising interest rates and underlined that the Polish zloty has lost value due to the election that will take place next year in the country. “We may see higher public expenditures to support growth in Poland early next year,” said Wietoska, adding that this could lead to a widening in the current account deficit.
“SLOWING GLOBAL GROWTH WILL NEGATIVELY AFFECT EXPORTS IN TURKEY”
Wietoska made the following assessment about how interest rate hikes and recession expectations in developed countries will affect pricing in Turkey:
“Tighter monetary policy in developed countries creates a negative environment for emerging markets. Countries with emerging market economies have high financing requirements and low foreign exchange reserves. This is also true for Ghana, Kenya and Nigeria. We see you applying to
Secondly, Wietoska stated that they anticipate a recession in the USA and a slowdown in growth in Europe, adding that due to this reason, local demand in Europe will decrease and it may create a negative environment for the export market in Turkey. Wietoska stated that due to the expectation of a slowdown in the global growth rate, local dynamics should be balanced in the next few quarters for growth in Turkey.
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