Tags: Roubini | emerging | markets | political

Roubini: 'Many Emerging Markets Are in Real Trouble'

By    |   Tuesday, 04 February 2014 08:27 AM

The turmoil of emerging markets during the past couple weeks points to the deep economic problems many of those nations face, says Nouriel Roubini, an economist at New York University.

"Many emerging markets are in real trouble," he writes in an article for Project Syndicate.

"The list includes India, Indonesia, Brazil, Turkey and South Africa (the 'Fragile Five'), because all have twin fiscal and current-account deficits, falling growth rates, above-target inflation and political uncertainty from upcoming legislative and/or presidential elections this year."

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Argentina, Venezuela, Ukraine, Hungary and Thailand face difficulties too, Roubini says. "Political and/or electoral risk can be found in all of them, loose fiscal policy in many of them and rising external imbalances and sovereign risk in some of them."

As for Brazil, Russia, India, China and South Africa, the BRICS countries, they are "now falling back to reality," Roubini argues.

"Three of them (Brazil, Russia and South Africa) will grow more slowly than the United States this year, . . . while the economies of the other two (China and India) are slowing sharply."

China has to worry about its credit-fueled investment boom that features excessive borrowing by local governments, state-owned enterprises and real-estate firms, he explains. This borrowing has weakened the asset portfolios of banks and shadow banks.

"Most credit bubbles this large have ended up causing a hard economic landing, and China's economy is unlikely to escape unscathed, particularly as reforms to rebalance growth from high savings and fixed investment to private consumption are likely to be implemented too slowly, given the powerful interests aligned against them."

To be sure, not all is doom and gloom for emerging markets, according to Roubini. "The threat of a full-fledged currency, sovereign-debt and banking crisis remains low, even in the Fragile Five," he says.

"All have flexible exchange rates, a large war chest of reserves to shield against a run on their currencies and banks and fewer currency mismatches (for example, heavy foreign-currency borrowing to finance investment in local-currency assets). Many also have sounder banking systems, while their public and private debt ratios, though rising, are still low, with little risk of insolvency."

So long-term optimism is justified for emerging markets.

"But the short-run policy tradeoffs that many of these countries face — damned if they tighten monetary and fiscal policy fast enough, and damned if they do not — remain ugly."

Shawn Tully, senior editor at large for Fortune, argues that investors shouldn't abandon emerging markets for developed ones now.

"The growing gap in valuations is totally unsupported by the fundamentals," he writes. "In general, the emerging markets economies are not only growing faster than the developed world, but are growing in a more fiscally disciplined way."

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The turmoil of emerging markets during the past couple weeks points to the deep economic problems many of those nations face, says Nouriel Roubini, an economist at New York University.
Roubini,emerging,markets,political
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2014-27-04
Tuesday, 04 February 2014 08:27 AM
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