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Market View: Will the crisis act as a "tipping point" for emerging markets?

09 October 2008

Dickon Harris asks whether there are any grounds behind claims that the credit crisis will be a tipping point for emerging markets, and if so, which countries look set to be hit hardest.

Read more: risk analysis emerging market

Last week World Bank president Robert Zoellick issued a number of warnings about the need for the G-7 to improve its decision making process, stating: "The G-7 is not working", and called for Brazil, China, India, Mexico, Russia, Saudi Arabia, and South Africa to join the present group to serve as, "a better group for a different time".

Among his most worrying prediction was that events in the financial markets in the last two months could act as a "tipping point" for emerging markets as they struggle to retain foreign direct investment. 

Zoellick says: "The events of September could be a tipping point for many developing countries.  A drop in exports, as well as capital inflow, will trigger a fall off in investments.

"Deceleration of growth and deteriorating financing conditions, combined with monetary tightening, will trigger business failures and possibly banking emergencies.  Some countries will slip toward balance of payments...