Emerging Economies in Trouble
The ongoing trade war between the United States and China is engulfing Latin America. Argentina has declared a sovereign default following Venezuela, causing a rapid depreciation of Latin American countries’ currencies.
The current situation is very similar to what they went through 10 years ago. In addition, it is very similar to what Asia went through 20 years ago.
During the first two-thirds of this year, the Argentine peso and the Turkish lira depreciated by 50.1% and 42.4% in relation to the U.S. dollar, respectively. Likewise, Brazil and South Africa showed a depreciation of 19.5% and 15.2%, respectively. The Brazilian real’s depreciation was 8.4% on May 8, when Argentina applied for a bailout, 15.5% on August 10, when the Turkish crisis emerged, and 19.5% on August 31, when another crisis emerged in Argentina.
With the emerging economies facing financial crises, concerns are rising over another global crisis after 1998 and 2008. According to Wall Street analysts, though, South Korea and the other Asian countries are still far away from a financial crisis and the current situation of Turkey and Argentina is nothing to lead to a change in Fed policy although it can spread to more emerging economies.
“The current financial instability of Turkey and Argentina is mainly because of interest rate hikes by the Fed and the U.S. government’s policy and advanced economies still remain solid and, as such, the current situation is unlike the past crises that were triggered by a global economic downturn,” said one of them.
Nonetheless, South Korea’s economic indices are going down. For example, the Bank of Korea announced on September 4 that South Korea’s real GDP totaled 397.9592 trillion won in the second quarter, up 0.6% from the previous quarter, whereas the rate of increase had been 1.0% in the first quarter. Major investment banks are adjusting their economic growth forecasts for South Korea downward. Late last month, Goldman Sachs lowered its forecast from 2.9% to 2.7% in one month.