(June 17, 2013) Emerging markets risk an interest rate shock once the U.S. Federal Reserve and other Western authorities start to withdraw global liquidity, the World Bank has warned. When the Fed turns off the tap, it’s the rest of the world that suffers. The world economy should brace itself for a slowing of stimulus by the Federal Reserve if history is any guide. “There is the risk that the transition to higher rates occurs in an abrupt and disruptive fashion. In such a scenario, markets react pre-emptively, potentially trapping some participants in vulnerable positions that appeared manageable under low interest rates.” The bank warned that banks “may be at particular risk” in countries that have let rip with the biggest asset bubbles. The institution cut its growth forecast for the global economy to 2.2% this year, a world recession under the bank’s traditional definition, chiefly due to faltering momentum in China and the rest of Asia. The World Bank said real interest rates were likely to jump by up to 270 points in the more heavily indebted BRICS states and other emerging markets as the West unwinds quantitative easing, and the tightening cycle starts in earnest. The Chinese bank Everbright defaulted on an interbank loan last week, one of several instances of lending stress in China over recent days and a sign that bad debts are emerging from the shadows of the banking system. For more info on this subject view my Video Playlist Entitled: " Coming Global Economic Collapse"- youtube/playlist?list=PL4A70A165AA000634
Posted on: Mon, 17 Jun 2013 20:53:05 +0000
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