Emerging market growth rates fell to their lowest level since the recession in 2009. Developing countries are struggling with the strong U.S. dollar and weak commodity prices. The IMF signaled that countries globally should prepare for slow growth unless policy makers act. The new slowdown in emerging markets differs from the recession of 2009 because the emerging markets were able to bounce back from the external financial crisis quickly while this slowdown is driven largely by internal factors.
What does this mean?
Some experts worry that the emerging market slowdown is evidence of a larger global growth issue. Some of the largest emerging economies are experiencing the largest slowdowns in growth rates. Declining commodity and oil prices have impacted export revenues in Brazil and Russia and the strong U.S. dollar has stagnated capital expenditure in most of the developing nations in Asia. Brazil’s growth rate is down 1.24% in Q1 of 2015 while China’s expansion rate is expected to decline to 6.82%. The average emerging market growth rate of 46 emerging markets is expected to decline 4% year over year.
Why should I care?
A slowdown in emerging market growth could potentially be indicative of larger global economic issues as the IMF predicts. If this occurs, it will affect everyday life for people in all nations as prices may rise and unemployment rates may increase. Furthermore, declining growth in emerging markets will impact the investment rates in those nations as worried investors may pull capital out of the countries.
Although risky, investors could take advantage of this investment opportunity to invest in emerging market stocks, which may be undervalued. Another investment opportunity would be to invest in currencies of emerging countries, where the currency may be trading at a lower than average level providing a buying opportunity.
Originally posted as part of the Finimize daily email.
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