Zandi: Collapse in Commodities Has “Crushed” Some Emerging Markets

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The slide in emerging markets carried over into 2016 and showed little sign of slowing as a decline commodities rattled global markets. Chief Economist of Moody’s Analytics Mark Zandi spoke to Emerging Market Views about how low oil could possibly go and what the decline has meant for emerging markets.

Emerging Market Views: How big has the impact of lower oil been on emerging markets?

Mark Zandi: The collapse in oil and other commodity prices have crushed emerging market economies in the Middle East, Africa and Latin America. Russia’s economy has also been hammered. Some emerging market economies have benefited from the lower commodity prices, most notable of those include China, India and Central Europe.

EMV: Which markets are weathering the storm of low oil and the end of the commodities super-cycle, if any?

Zandi:  Oil prices should bottom out in the next several months, but could briefly fall as low as $20 per barrel before then. The key to a turn up in oil prices is clear evidence the global oil production has turned down and inventories are declining. That isn’t likely until late spring or summer.

Commodity-producing EM economies would get a meaningful boost if oil prices reversed, and return to over $60 per barrel this year. This would mitigate the threat of corporate defaults and bank failures, which is looming in many emerging market economies that levered up in the boom times.

EMV: Will interest rate action in the U.S. have any effect on the emerging markets this year [2016] or has it all ben priced in?

Zandi: Most emerging market currencies and economies have already adjusted to the prospect for normalizing monetary policy in the U.S. This adjustment began back in late 2013 when then Federal Reserve Chairman Ben Bernanke first publicly considered the possibility of ending the Fed’s quantitative easing policy.

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