Financial markets seem to believe that president-elect Trump can deliver higher growth and inflation, as manifested in the rotation from bonds to equities. At the same time, the shock waves already felt by assets abroad may be a harbinger of the bumpy and treacherous journey ahead. No wonder Mr. Trump’s softening of statements — and campaign promises — after the election has been taken with sighs of relief.
Discussions around large current account imbalances among systemically relevant economies as a threat to the stability of the global economy faded out in the aftermath of the global financial crisis. More recently, some signs of a possible resurgence of rising imbalances have brought back attention to the issue. We argue here that, while not a threat to global financial stability, the resurgence of these imbalances reveals a sub-par performance of the global economy in terms of foregone product and employment.
Huffington Post, Roubini EconoMonitor (with Aleksandr V. Gevorkyan)
Capital outflows from emerging market economies have substantially accelerated since last year. The cycle of intense debt leveraging that took place in those economies after the 2008 global financial crisis has also started to reverse. Furthermore, 2015 was also a fifth consecutive year of growth deceleration in emerging markets. Some analysts have taken those features as pointing to a high likelihood of a “third wave” of the global financial crisis, this time centered on emerging markets. While arguably their combination may acquire a disorderly nature and materialize systemic risks to those economies as a group - and therefore to the global economy going forward - there are also reasons to expect the significant portfolio rebalancing at play not to lead to a disruptive break.