Emerging economies should gird for possible rough times as the US Federal Reserve prepares to raise interest rates and world economic growth slows because of the Omicron variant of SARS-CoV-2, the IMF warned yesterday.
The IMF, which is scheduled to release updated economic forecasts on Jan. 25, said that the global economic recovery from the ravages of the COVID-19 pandemic should continue this year and next.
However, “risks to growth remain elevated by the stubbornly resurgent pandemic,” IMF economists Stephan Danninger, Kenneth Kang and Helene Poirson wrote in a blog post.
Photo: EPA-EFE
The highly contagious Omicron strain has spread like wildfire around the world since the middle of last month, causing record numbers of new COVID-19 cases in the latest wave of the global health crisis.
Omicron, which seems to cause less severe disease than previous strains of the virus, is causing countries to reinstitute health measures that hamper economic growth.
“Given the risk that this could coincide with faster Fed tightening, emerging economies should prepare for potential bouts of economic turbulence,” the economists said, as these countries are also confronting elevated inflation and substantially higher public debt.
The Fed has signaled that it would raise key interest rates sooner and more aggressively than it had planned, to counter rampant inflation in the US that is hitting US households and consumption — the engine of economic growth in the US.
Higher interest rates mean financing costs for some emerging economies with US-dollar-denominated debt would rise. The countries are already lagging behind in the global economic recovery and thus less able to absorb added expenditure.
“While dollar borrowing costs remain low for many, concerns about domestic inflation and stable foreign funding led several emerging markets last year, including Brazil, Russia and South Africa, to start raising interest rates,” the IMF said.
Quicker Fed rate hikes could rattle financial markets and cause tighter financial conditions on a global scale, the blog said.
The risk is that there would be a slowing of demand and trade in the US, as well as capital flight and a depreciation of the dollar in markets of emerging countries.
The IMF recommended that emerging economy nations “tailor their response based on their circumstances and vulnerabilities.”
Central banks that are raising interest rates to fight inflation should engage in “clear and consistent communication,” so people better understand the need for price stability, the international lender said.
PATENTS: MediaTek Inc said it would not comment on ongoing legal cases, but does not expect the legal action by Huawei to affect its business operations Smartphone integrated chips designer MediaTek Inc (聯發科) on Friday said that a lawsuit filed by Chinese smartphone brand Huawei Technologies Co (華為) over alleged patent infringements would have little impact on its operations. In an announcement posted on the Taiwan Stock Exchange, MediaTek said that it would not comment on an ongoing legal case. However, the company said that Huawei’s legal action would have little impact on its operations. MediaTek’s statement came after China-based PRIP Research said on Thursday that Huawei filed a lawsuit with a Chinese district court claiming that MediaTek infringed on its patents. The infringement mentioned in the lawsuit likely involved
Taipei is today suspending work, classes and its US$2.4 trillion stock market as Typhoon Gaemi approaches Taiwan with strong winds and heavy rain. The nation is not conducting securities, currency or fixed income trading, statements from its stock and currency exchanges said. Authorities had yesterday issued a warning that the storm could affect people on land and canceled some ship crossings and domestic flights. Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) expects its local chipmaking fabs to maintain normal production, the company said in an e-mailed statement. The main chipmaker for Apple Inc and Nvidia Corp said it has activated routine typhoon alert
GROWTH: TSMC increased its projected revenue growth for this year to more than 25 percent, citing stronger-than-expected demand for AI devices and smartphones The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday raised its forecast for Taiwan’s GDP growth this year from 3.29 percent to 3.85 percent, as exports and private investment recovered faster than it predicted three months ago. The Taipei-based think tank also expects that Taiwan would see a 8.19 percent increase in exports this year, better than the 7.55 percent it projected in April, as US technology giants spent more money on artificial intelligence (AI) infrastructure and development. “There will be more AI servers going forward, but it remains to be seen if the momentum would extend to personal computers, smartphones and
CHANGE OF FORTUNES: Concern over a pricey valuation and the risk of tighter US curbs on chip sales to China have poured cold water on TSMC’s bullish momentum Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) shares fell the most in three months yesterday upon trading resumption, joining a global technology rout as investors dramatically soured on the promises of artificial intelligence (AI). The shares declined 5.62 percent to close at NT$924 in Taipei, dragging down the benchmark TAIEX, which fell 3.29 percent to 22,119.21 points amid a technical correction, Taiwan Stock Exchange data showed. Other chip stocks also fell, with ASE Technology Holding Co (日月光投控) plunging 9.86 percent, MediaTek Inc (聯發科) dropping 2.35 percent, Realtek Semiconductor Corp (瑞昱) falling 1.33 percent and United Microelectronics Corp (聯電) retreating 1.17 percent, while Apple