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Think about the little guy, Fitch warns Fed
A couple of weeks ago the IMF raised the specter of widespread corporate debt defaults and economic misery in emerging countries that could cause a 2008-type sclerosis in the international financial system. Now here’s another report warning the Fed about being too parochial as it ponders an interest rate hike.
Fitch Ratings points out that vulnerable emerging markets are already a threat to global growth as a collapse in commodity prices and political shocks worsen secular slowdowns.
“Our latest forecast for global growth of 2.3% in 2015 is the weakest since the global financial crisis in 2009. Against this backdrop, the Fed's looming tightening of monetary policy after an unprecedented period of historically low rates will add to the macroeconomic and external financing pressures on emerging markets (EM),” notes Fitch.
“EM bonds were boosted in the last decade by international investors' search for yield and increased funding disintermediation in local debt markets. This makes EM borrowers vulnerable to rising US rates and the reversal of previously strong capital flows,” Fitch adds.
The most exposed? Turkey, followed by most of Latin America.