After the plunge of the commodity prices, the US Fed’s rate hikes are paving way for dimmed prospects in many emerging economies. Nigeria is not an exception.
Recently, the US Federal Reserve raised interest rates by 25 basis points, taking the first step away from its near-zero interest rate policy. Advanced economies are coping with secular stagnation. Emerging economies are navigating in new uncertainty.
Brazil’s equity market lost a whopping 40% in US dollar terms last year. Russia seeks recovery despite renewed Western sanctions. Led by consumption, India’s growth prospects are better but it remains vulnerable, due to current account deficit. In China, growth is decelerating and markets are volatile but rebalancing is moving ahead.
In 2015, net capital flows for emerging economies will be negative, for the first time since 1988. With worsened outlook and the sharp plunge of energy prices, commodities-reliant emerging economies will be hit particularly hard, while geopolitical risk will escalate in fragile states.
In the US, rising rates will reward investors but increase the borrowing costs for consumers amid the earnings and revenue slump, and sluggish growth. Rate hikes will boost the sharp plunge of energy prices, while sending the US dollar climbing.