Thursday, January 13, 2011

Emerging markets seen stronger in 2011

December 15 2010

Bank of America Merrill Lynch's Global Economic Year Ahead 2011 report expects growth in most emerging market economies to pick up in 2011 even as other regions slow.

It however notes that emerging markets remain vulnerable to contagion from the Euro area.

Eurozone countries such as Ireland and Portugal have been experienced sovereign debt woes. There are now fears that bigger Eurozone economies including Spain may have to go to the International Monetary Fund (IMF) for help.

The South African economy will see an improvement, as the latest rate cuts result in a lower interest burden for households.

The SA Reserve Bank has reduced lending rates substantially since 2008 in efforts to stimulate economic activity. The recent interest rate cuts were made during the September and November meetings of the bank's Monetary Policy Committee (MPC).

Bank economists expect only a moderate rise of inflation rates, adding that negative output gaps are likely to contain second round effects from food inflation in most countries.

The Global Economic Year Ahead report says however that inflation upside risk is relatively highest in South Africa and Turkey, as both have structurally sticky inflation which creates the risk of second round effects even at small negative output gaps.

Expected limited upside risks to inflation and abundant global liquidity are expected to shift monetary policy tightening to what the report identified as macro-prudential measures and exchange rate appreciation.

Most South African economists see interest rates being kept on hold for most of 2011.

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