By Sven Egenter
BASEL, June 30 (Reuters) - Emerging economies risk taking a
harder hit than so far anticipated from the slowdown in major
industrial countries, the Bank for International Settlements
said in its annual report.
Emerging markets in Asia and Latin America have been showing
resilience and at 6.7 percent the consensus growth forecast for
emerging countries for 2008 was not much below the average of
2003-2006 boom, the BIS said in the report published on Monday.
"Nevertheless, the potential knock-on effects of financial
market turmoil in the major centres increased the risk of a
slowdown in (emerging markets)," said the BIS, which acts as a
central bank to its member central banks.
"Exports of (emerging economies) could be significantly
affected if the U.S. economic slowdown deepens," the BIS said.
In addition, soaring food and oil prices has driven
inflation above target in many countries, making a case for
interest rate rises when slowing growth would normally prompt
cuts. "As in advanced countries, these conflicting forces have
created a major dilemma for monetary policy," the BIS said.
"Efforts to resist currency appreciation have introduced
additional complications, having been associated with a sharp
increase in foreign reserves and in credit growth in a number of
(emerging economies)," the BIS said.
RESILIENT, BUT ...
Policy makers at regular bi-monthly meetings at the BIS in
Basel have praised the resilience emerging economies have shown
through the global financial storm that broke last August.
In its report, the BIS said many emerging countries looked
less dependent on demand from the United States -- making them
more resilient to a slowdown there compared with the last
downturn in 2001 after the internet bubble burst.
In addition, Asian and Latin American countries have
successfully boosted private consumption and investment spending
there is now increasingly contributing to growth, the BIS said.
But the BIS warned that optimistic forecasts for the
emerging world might ignore serious risks.
Especially in Asia, fading demand in the United States --
still a very important export market -- could have a domino
effect.
"There is a risk that the growth in China's imports overall
could slow down sharply should the U.S. economy weaken further,
with adverse consequences for its trading partners," the BIS
said, adding U.S. demand was slowing in key sectors.
"For example, the growth in imports of certain IT products
that are important for a number of East Asian economies -- e.g.
Korea, Malaysia and Singapore -- has declined," the BIS said.
"The growth in demand for consumer goods like toys and for
certain heavy vehicles has also fallen, affecting producers in
some (emerging markets) such as China and Mexico," the BIS said.
The dollar's depreciation is helping to sap U.S. demand by
making imports to the United States more costly, the BIS noted,
while fading export growth threatened to dampen consumption and
investment in the emerging countries.
"Another risk is that tighter financing conditions could
constrain spending," the BIS said, noting some emerging markets
were particularly dependent on foreign capital flows to finance
big current account deficits.
"Countries ... that might find it particularly difficult to
secure foreign funding if global financing conditions were to
tighten further can be identified in the Baltic and southeastern
European regions," the BIS said.
For the full BIS report click on: www.bis.org
(Reporting by Sven Egenter; Editing by Ruth Pitchford)
