Markets have been mugged by economic reality this year — and there is little sign of good news to help them recover.
Two assessments from the International Monetary Fund (IMF) this month reiterate the problems in the world economy. IMF said earlier this month that the world economy would grow at a slower pace and face higher inflation in 2008 and 2009. And the fund said this week in an update of its Global Financial Stability Report that financial markets continue to be in a fragile state and risks remain “elevated”.
Though emerging markets have been more resilient in the one year since the credit crisis, IMF said they will have problems in raising money abroad. And certain markets with large external imbalances — a current account deficit in excess of 5% of GDP — are already facing high risk premia and sharper drops in share prices. India has an external deficit of 3% of GDP. Still safe. But we must be careful.