Emerging Market View: What Our Analysts Are Reading

EM View

The European Central Bank (ECB) is ready to “step up the pressure” in its deflation battle, said ECB President Mario Draghi addressing the Euro Banking Congress in Frankfurt on Friday. According to the Wall Street Journal, ECB is ready to expand its stimulus programs “if inflation fails to show signs of quickly returning to the bank’s target.” Our analyst’s view is that continued attempts to avoid deflation will cause further depreciation for the euro.

“The euro will continue to depreciate against the USD in 2015 as expectations for inflation in the eurozone and the US diverge. The European Central Bank (ECB) president Mario Draghi has signaled more urgency in helping the eurozone to avoid deflation, which has already triggered a euro selloff. Continued monetary signaling or action to avoid deflation will result in further euro depreciation,” says FSG’s senior analyst for Western Europe, Lauren Goodwin.

The Colombian government has launched its mot ambitious transport infrastructure program in the country’s history, according to the Financial Times, and is hoping the private sector will help finance it.

“Colombia’s ambitious infrastructure project will help offset falling investment in the country’s oil industry. More importantly, it will help improve one of Colombia’s principal logistical bottlenecks by reducing domestic transportation costs,” says FSG’s senior analyst for Latin America Gabriela Mallory.

China unexpectedly cut interest rates on Friday in a continued effort to support an economy that is approaching its slowest rate of expansion in “nearly a quarter of a century,” according to Reuters.

“The surprise move from the PBOC indicates the growing global trend of large central banks shifting more toward accommodating monetary policies in the face of deflationary pressures from slowing economic growth,” says FSG’s Associate Practice Leader for Global Analytics, Sam Osborn.

Check back next week for more FSG analyst commentary on the latest emerging markets headlines.

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