MEXICO CITY- Smaller emerging markets are no longer at risk of facing a stronger sovereign debt crisis, Moody’s Analytics said on Wednesday, but weaker currencies, unemployment and high interest rates are still obstacles for their economic growth.
Large commodity exporters like Brazil and Indonesia performed “surprisingly well” in the wake of the Russian invasion of Ukraine, Moody’s said in a report, reaping large benefits from the surge in energy, metals and agricultural commodity prices.
On the other hand, economies less dependent on commodities such as Mexico and Vietnam also outperformed as geopolitical tensions between Russia and the West bubbled, prompting new investments in manufacturing and bolstering exports of autos, electronics and semiconductor components.
These factors, Moody’s said, have limited the damage to emerging market currency and equity markets from the tightening monetary policy cycle in developed economies, spearheaded by the US Federal Reserve.
Despite that, greater reliance on commodity prices, volatile currencies and less recourse to countercyclical fiscal policy could lead Latin American emerging countries to a sharper contraction than in other emerging regions, Moody’s said.
“The lack of robust fiscal shock absorbers and lingering barriers to investment make for a more protracted recovery, with unemployment rates remaining elevated well into 2024.”
