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Emerging Markets Daily - October 12
IMF Cuts Growth Forecast, Turkish Lira Hits Record Low, Brent Nears $85, Bank of Korea Weighs FX Intervention, Morocco Emerges as Auto Manufacturing Hub
The Top 5 Stories Shaping Emerging Markets from Global Media - October 12
IMF Cuts Global Growth Forecast Amid Supply Chain, Inflation Concerns; EM Forecast Slightly Up
Wall Street Journal
“The International Monetary Fund lowered its growth forecast for the world economy for this year, citing supply-chain disruptions in rich economies and global-health concerns caused by the spread of the contagious Covid-19 Delta variant.”
“The group also raised its inflation outlook, urging policy makers to stand ready to take swift action if the recovery strengthens more quickly than expected or inflation risks become pronounced. Prices from food to medicine to vehicles have risen world-wide, threatening the global recovery after the pandemic wiped out businesses and jobs…”
“The IMF cut its global growth forecast for 2021 to 5.9% from 6% in its July report, a result of a reduction in its projection for advanced economies to 5.2% from 5.6%. The reduction mostly reflected problems with a global supply chain that caused a mismatch between supply and demand.”
“For emerging markets and developing economies, the outlook improved. Growth in these economies is pegged at 6.4% for 2021, up from an estimate of 6.3% in July. The uptick reflected stronger performances by some commodity-exporting countries amid rising energy prices.” Yuka Hayashi reports.
Lira Falls to Record Low on Erdogan Hints of Military Action in Syria
“The Turkish lira extended its slide to a record low after President Recep Tayyip Erdogan hinted at a possible military offensive into neighboring Syria.”
“The currency depreciated as much as 0.4% to 9.0398 per U.S. dollar after Erdogan said late Monday that Turkey is determined to eliminate threats emanating from Syria ‘either through forces that are active there, or by our own means.’”
“While Ankara has been embroiled in the conflict for years, the move threatens to stoke tensions with the U.S., which is backing Kurdish militants in the region that Turkey opposes. And it comes at a fraught time for the NATO allies, with Washington warning it could impose sanctions on the country again.”
“The losses were exacerbated by a bout of dollar strength and fragile global risk appetite. An unexpected rate cut last month reduced the allure of Turkish assets and fueled concern that inflation -- already running at the fastest pace in two years -- would continue to accelerate.” Tugce Ozsoy reports.
Brent Nears $85 Amid Continued Energy Shortage
“Oil prices continued their rally on Tuesday and are trading above $80 per barrel for the second day amid a global shortage in the supply of energy. Brent rose to $83.90 per barrel…while West Texas Intermediate was up 0.20 per cent at $80.68 per barrel…”
“The rally comes amid a widespread energy crisis spurred by a shortage of oil and gas in Europe ahead of the winter season. Oil is at a three-year high, with natural gas up nearly 84.69 per cent year-to-date amid disruptions in global supply chains as well as underinvestment in the commodities.”
“Natural gas prices fell 1.37 per cent to reach $5.27 per million British thermal unit on Tuesday.”
“Rising energy prices have prompted several banks to revise forecasts. UBS raised its expectations for oil prices by $5 per barrel, expecting Brent and WTI to average $80 per barrel and $77 per barrel, respectively, over the next 12 months…The opening up of the US, the world's largest producer of oil and gas, to vaccinated tourists is also likely to push demand higher.” Jennifer Gnana reports.
Bank of Korea Weighs FX Intervention to Stem Won’s Slide
“The governor of the Bank of Korea said Tuesday that the central bank is considering intervening in the foreign exchange market in a bid to stem the won's sharp slide against the U.S. dollar.”
"‘We plan to stabilize the market, if needed, watching outside uncertainties carefully,’ Gov. Lee Ju-yeol told reporters after the bank's seven-person monetary policy board kept its key interest rate unchanged at 0.75% as expected. ‘Recently, the won-dollar exchange rate has risen somewhat quickly than other key currencies.’”
“The won slid to 1,200.40 against the greenback in the morning trading -- its weakest level in 14 months. The South Korean currency fell 5.2% versus the dollar in the three months through the end of September.”
“Lee hinted that the central bank will raise its benchmark next month as the South Korean economy is expected to post robust growth -- the BOK sees a 4% expansion in gross domestic product this year -- and inflation to forecast to accelerate to more than 2%.” Kim Jaewon reports.
Morocco Emerges as Auto Manufacturing Hub
“Each year, Moroccans buy about 160,000 new cars — a relatively small number for a population of 36m. Yet, despite modest sales, the kingdom has gained critical mass as an automotive manufacturing hub.”
“In 2018, it surpassed South Africa as the biggest exporter of passenger cars on the continent. ‘Just as you’ve seen the car industry move into eastern Europe, then the next logical step is north Africa,’ says David Cowan, chief economist for Africa at Citibank.”
“Exports in 2019 hit roughly $10bn and, although they dipped in 2020 after a pandemic-related demand-and-supply crunch, they have recovered this year. About 80 per cent of the roughly 400,000 cars produced are sold to Europe, with France, Spain, Germany and Italy the top destinations.”
“Other markets include Turkey and the Middle East, with a smattering going to the rest of Africa — a market now theoretically more accessible thanks to the African Continental Free Trade Area, a trading bloc that came into effect this year.”
“The Moroccan car industry now directly employs some 220,000 people, most of whom work for roughly 250 suppliers that have sunk roots in the country since carmakers began to gain real traction more than a decade ago.” David Pilling reports.
“Everything in moderation, including moderation.” - Oscar Wilde