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Economic doubts grow

Emerging countries are the most exposed to the current financial tension

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Economic doubts grow

It has been a common me among analysts for a few years inadequacies, imbalances and weaknesses with which global economy has been moving away from worst of crisis. For many it had not been completely out of it, despite favorable macroeconomic evolution. It seemed that worst had already happened some time ago. However, events of recent weeks bring financial clouds, particularly for emerging. The imbalances were global, but detonator somehow seems to be coming from Trump administration.

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On one hand, we are betting on increased tariffs and trade barriers with China and or areas of world. On or hand, rupture of agreement with Iran is assuming a marked increase in oil prices with unforeseeable consequences to this day. A menu watered with a monetary context that tends to "normalization", implying withdrawals of stimulus and increasing interest rates.

International trade will have a considerable impact. China is going to have to react. Commercial warfare is served. It is curious that both US and EU could have joint legitimate arguments against Asian giant. But Washington has decided to attack EU instead of looking for it as an ally, creating more uncertainty for global economy. We will have to wait for final form of this so-called "trade war", how many countries it affects and how severe. You can't be optimistic.

The great detonation of instability in recent days has been oil, with a notable increase in its price. Once market has discounted, among or factors, that a large producer (Iran) will not be able to contribute to supply as in last two years. This raises costs and reduces investment of oil-importing economies. This was expected at some point and on a timely basis, but sanctions on Iran have advanced it and given it some temporary permanence.

What immediate effects can be expected? In eurozone, for example, inflation will rise and bring ECB closer to price target at a time when European economy signals deceleration. No Wonder Draghi asked in Florence a few days ago — for umpteenth time — a much more coordinated fiscal policy and powerful mechanisms. There are great risks and re is not much room for monetary maneuver.

More troubling is situation of emerging economies. The American Treasury bond and dollar's strengning are wreaking havoc. From Turkey to Argentina, which has already requested assistance from IMF. Their monetary policies can hardly counteract sinking of ir currencies. Those with interests — like Spain in Latin America — may have one more problem. To know extent of current financial tension it will be decisive to know if case of Argentina is isolated or if we are going to have a house of cards among emerging.


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