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Sunday, 7 July 2019

The trade war isn’t affecting emerging markets as much as you thought

The trade war isn’t affecting emerging markets as much as you thought: Ever since Donald Trump made the first move in the ongoing US-China trade duel last year, financial commentators have ruminated on how emerging markets are about to experience a slow-mo economic calamity. But they appear to have jumped the gun. New data from the Institute of International Finance (IIF) shows that emerging markets have perhaps fared a little better than the experts first thought. Inflows to non-China emerging markets came to around USD 23 bn in 2Q2019, according to the IIF’s capital flow tracker published last week. This marks a 25% fall from the USD 31 bn that made its way into non-China EMs in the first quarter.

“This is still a very healthy pace,” IIF chief economist Robin Brooks writes in the report, but cautions that the current overhang in EM assets will present an obstacle to new inflows. To be sure, the current ‘Trade Tantrum’ predicament pales in comparison to last year’s EM Zombie Apocalypse. You only need to glance at the above graph to see how far away non-China EMs are from a repeat of the 2013 or 2018 experiences.

This is still a significant drop-off though: Make no mistake, an USD 8 bn quarterly fall shouldn’t just be dismissed as a non-event. And while the IIF might call these figures “remarkably robust,” it remains crucial for emerging markets that the US and China come to some sort of truce as soon as possible.

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