These are highly uncertain times for the global economy, as policy moves (or lack thereof) have yet to offer a panacea for the worsening debt crisis in the euro-zone and the wanting economic recovery in the United States. With investor sentiments at their lowest ebb and risk-aversion at its peak since the height of the 2008 financial crisis; equities, commodities and currencies, all took a beating lately. Amid this entire hoopla and gloom-doom scenario, economists are increasingly worried about the robustness of the emerging economies, which would, supposedly, bring the global economy back to shape. A glimpse of things to come could be found in "Regional Economic Outlook", released yesterday by the International Monetary Fund. The IMF highlights in its October outlook that the global economy is slowing down, owing to growing fatigue in the advanced economies. Fiscal health of major countries and financial stability of their financial institutions pose major downsides to the economies of the advanced economies, expected to grow by only 1.5 percent in 2011 and just below 2 percent in 2012. "Fears of a renewed advanced-economy recession, along with concerns about negative feedback between sovereigns and financial institutions in Europe, and policy inaction in key advanced economies, have sparked risk aversion and market volatility," notes the report. Although emerging economies continue to expand - projected by the IMF to grow at 6.5 percent in 2011 - the domestic policy tightening (due to strong domestic demands) and global uncertainties are moderating their growth. The report mentions that adverse economic effects from advance economies have spilled over to the emerging economies, whose impact is really difficult to put an estimate on. The October outlook by the Fund also features an analysis of Latin Americas vulnerability to a commodity price bust and the policies that could mitigate it. It specifically mentions countries in the region whose economies have been dependent, for the last forty years, on exports of energy and metals commodities. The South American countries, like Brazil, Argentina, Venezuela, Chile and Columbia, significantly benefitted from the recent commodity price boom. However, they are unprepared, hence increasingly vulnerable, if a commodity bust episode happens. To absorb shocks of a likely bust, IMF recommends a flexible exchange rate and prudent management of fiscal and external positions during the boom years. Fears of a drop in the prices of these commodities loom large, due to inter-twined happenings across the globe. As the dithery policymakers in the advanced economies have yet to come up with the intent, let alone a specific agenda, to steer things around; emerging economies are feeling the heat. This could be witnessed in the recent two-year lows on the equity bourses across Asia-Pacific. Moreover, a further (likely) slowdown in major exporting hubs, like China, also poses a downside to the commodity-dependent South American countries. The keen-sighted exporters would utilise existing inventories & stockpiles before they order new supplies, hence keeping energy and metal prices in check. IMF stopped short of pinning the responsibility of this economic freefall on the Trichets and Geitners of the policymaking elite. However, listening to the commodity dealers and equity traders makes it painfully obvious that markets have lost faith in government policies that are cantered on bailouts and stimuli packages. Whether there is a long-term fix to the economic ills is apparently not known yet, to anybody!
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