1、 1 Internal Allianz Research Reverse currency war puts emerging markets at risk Financial tightening,slowing growth and rising uncertainty are creating challenges for the most vulnerable countries 29 September 2022EXECUTIVE SUMMARY The increasingly hawkish US Fed has triggered a“reverse currency war

2、”as central banks tighten their stance more than would otherwise be necessary if inflationary pressures were less universal.The combination of tighter global financial conditions and persistently weak risk sentiment favors a substantially stronger US dollar and thus puts increasing pressure on many

3、emerging market(EM)countries with unsustainable external imbalances.Eleven larger EMs are at risk of a balance-of-payments(BoP)crisis:Argentina,Chile,Colombia,Egypt,Ghana,Kenya,Tunisia,Pakistan,Hungary,Romania and Turkey.Assuming a global EM BoP crisis would result in strong recessions in these 11 m

4、arkets,the direct impact on global GDP growth could be up to-0.3pp,while we would expect on balance limited contagion to other EMs.Seven of these eleven EMs Argentina,Egypt,Ghana,Kenya,Tunisia,Pakistan and Turkey also have an elevated sovereign default risk.In contrast,Chile,Colombia,Hungary and Rom

5、ania face milder problems,for different reasons,and/or they have extra backstops,e.g.the EU and ECB for Eastern Europe.As a result,we do not expect these countries to default.However,significant downside risks could trigger a wider EM crisis:a deeper-than-forecasted global slowdown,China failing to

6、contain its ongoing debt crisis and the consequences spilling over to other EMs or an entrenched energy crisis that keeps financial conditions tighter for longer.According to our initial estimations,if the Fed funds rate remains above 3.5%(or equivalent to 2.5%for the ECB)for longer than a year,we e