Emerging-market credit to be constrained by US risks, Moody’s says

Emerging economies will continue to suffer from economic problems in the United States, which restrict their access to markets and raise financing costs, according to a report from Moody’s posted on Thursday.

The combination of US monetary policy, tensions in the banking system and “the possible consequences of the stagnation of the debt ceiling” contribute to weak credit conditions in emerging markets, the credit agency said, adding that the world’s largest economy is headed for a mild recession in the second half of the year.

The White House and congressional Republicans are expected to resume negotiations Thursday on an agreement to raise the ceiling on public debt, from US$ 31.4 trillion, with only a week left before a possible start of defaults.

“The attention of many market participants has returned to the outlook for global economic growth and the future path of US interest rates.”, says the report, directed by the analyst Vittoria Zoli. “Risks to our base case include whether and how quickly US inflation subsides, and the Federal Reserve’s response to it.”.

Moody’s expect growth to slow downin most emerging markets this year”. The exporters of raw materials middle East, Africa The US and Latin America are set to suffer the most, as commodity prices decline on recession fears and concerns about oversupply.

“The increase in commodity prices (with the exception of iron ore) since the reopening of China has been relatively subdued, if not negative”, the report states.

The credit agency, which rates the sovereign debt of 105 emerging markets, added that border economies are at greater risk of default as they cannot resort to international markets.

But he also pointed out that there is a “some degree of stabilization”, with the pace of sovereign downgrades slowing relative to the upgrades.

Moody’s recently downgraded the rating of bolivian from B2 to Caa1, Pakistan from Caa1 to Caa3 and changed its outlook from negative to stable, and Kenya from B2 to B3. In addition, he put the outlook on Egypt under review for a possible downgrade from stable.

Source: Reuters