In the aftermath of Omicron, the IMF issues a warning to emerging economies
In the aftermath of Omicron, the IMF issues a warning to emerging economies
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The IMF urged emerging economies to brace themselves for potentially difficult times as the US Federal Reserve prepares to raise interest rates and global economic development slows due to the Omicron form of Covid-19.

The International Monetary Fund indicated that for the time being, global economic recovery from the pandemic’s devastation should continue this year and next, according to updated economic predictions to be released on January 25.

But, as IMF economists Stephan Danninger, Kenneth Kang, and Helene Poirson stated in a blog post, “risks to growth remain raised by the stubbornly rebounding epidemic.”

Since mid-December, the highly contagious Omicron strain has spread like wildfire around the globe, resulting in a record number of new Covid cases in the newest wave of the global health disaster.

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Omicron, which appears to produce less severe sickness than past coronavirus strains, is prompting countries to reintroduce health regulations that stymie economic progress.

“Given the possibility that this coincides with faster Fed tightening, developing economies should prepare for future bouts of economic volatility,” the analysts wrote, noting that these countries are also dealing with high inflation and significantly bigger government debt.

The Federal Reserve has indicated that it will raise key interest rates sooner and more aggressively than previously planned in order to combat rampant inflation in the United States, which is wreaking havoc on American households and consumption, which is the engine of the country’s economic growth.

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Higher interest rates will increase the cost of funding for some emerging economies with dollar-denominated debt.

These countries are already lagging behind the rest of the world in terms of economic recovery, making them less equipped to absorb further spending.

“While dollar borrowing costs remain low for many, concerns about domestic inflation and steady foreign funding pushed several emerging nations, notably Brazil, Russia, and South Africa, to raise interest rates last year,” according to the IMF.

According to the site, faster Fed rate hikes might upset financial markets and tighten global financial conditions.

The risk is that demand and commerce in the United States may slow, as well as capital flight and a depreciation of the dollar in emerging market markets.

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According to the International Monetary Fund, emerging economies should “tailor their response according on their circumstances and vulnerabilities.”

Central banks should also engage in “clear and consistent communication” to ensure that the public understands the importance of price stability, according to the international lender.