Global markets surged for a second day yesterday following a
bout of turmoil not seen since the dark days of the global
financial crisis, as fears of a eurozone meltdown appeared to
But leading economists warned that the global recovery
remained on thin ice and that that would not change,
even after factoring in resurgent demand from emerging
Stocks rebounded sharply after a three-day decline, as China
said it remains a committed investor in Europe, quelling fears
that the regions debt crisis would spread. But experts
remained unconvinced the rally would be sustained given what
they see as a bleak outlook for global growth.
Willem Buiter, chief economist at Citi, told
Emerging Markets: Whatever contribution to
global growth the advanced industrial countries are providing
now and its already modest will become even
Even accelerating demand from emerging markets is not
going to keep up growth globally.
As Emerging Markets went to press the FTSE
All-World equity index was up 2.6%, commodities prices had
edged higher and high-yielding currencies were back in favour.
Meanwhile the MSCI Emerging Markets Index advanced 2.3%,
extending Wednesdays 3.2% rally.
But Buiter cautioned on excessive investor enthusiasm for
emerging market assets. This exuberant growth in emerging
markets, and the asset boom and bubble which is beginning to
accompany it, will lead to a familiar boom, bubble and bust
cycle, he said.The next global downturn will come
from the emerging markets rather than the advanced
Arnab Das, head of strategy at Roubini Global
Economics, told Emerging Markets: The whole
world, the global equilibrium has been destabilized by the
crisis and the response to the crisis.
He added that he was concerned by an apparent
amnesia in financial markets in the wake of the crisis.
The bounce suggested to many that we got through the
worst crisis in living memory, so, no big deal, lets get
back to business as usual.
But he said: Were in a transition from an
unsustainably high growth rate and level of activity to
a more reasonable place.
Markets cant just all go up because were
pulling back from Armageddon. They have to differentiate,
he said. I think were well into that process, and
its going to have to continue for a few years
Das said that emerging market growth and investment could
suffer as surging capital inflows and upward pressure on
currencies stoke inflation. The flipside of very easy
money continuing in the developed world is the export of
inflation to emerging markets that are still pegging [their
currencies] to the dollar.
While he said that this dynamic would not necessarily imply
a macro crisis for emerging markets, it would
nevertheless mean financial instability, which has to be
tackled with tighter monetary policy slowing down the recovery
in these countries.
Experts in Abidjan warned this week that Africa remained
vulnerable to European contagion through financial and trade
channels, while others cautioned that the region is also
dangerously exposed to an overheating Chinese economy.
Konrad Reuss, Standard & Poors managing
director for sub-Saharan Africa, said that Africa could suffer
if heightened risk aversion meant investors shunned emerging
and frontier markets in favour of safe haven
assets. He added: As long as China will keep growing that
will serve as a bit of a cushion.