Goldman Sachs expects emerging markets to continue to weaken
More capital outflows will hurt developing economies as the developed world recovers
Emerging markets will underperform developed markets this year, Goldman Sachs said, with capital expected to continue flowing out as more developed economies recover and the United States exits from its ultra-loose monetary policy.
"The emerging-market underperformance is going to continue in 2014," Goldman's chief markets economist, Dominic Wilson, told a press conference in Hong Kong yesterday.
"We've seen quite a lot of pressure on the emerging-market currency and bond markets. We think the adjustment process is not finished."
Emerging markets had paid a price as they took pretty aggressive actions, including excessive interest rate increases, to boost domestic consumption when export demand fell sharply after the 2008 global financial crisis.
Those measures gave their economies a short-term boost, Wilson said, but the underlying problems could not be underestimated.
"The cost is that the current account positions generally deteriorated, interest rates fell further than perhaps they should have done and credit growth, in many cases, boomed," he said.
Emerging markets were now facing "weaker currencies, domestic market demand restraints, higher interest rates and restraints on credit growth", Wilson said.
