The export channel from devaluation remains a positive force for EM one we think is underappreciated at the current juncture.

Non-resident portfolio outflows from EM have been large, amounting to a five standard deviation shock in March and April.

Markets have been anxious about the global growth outlook for some time, with weak manufacturing data interacting with trade tensions to dim sentiment. Amid the gloom, we detect early signs that manufacturing may have troughed, and that adverse spillover to investment, important for future growth, is limited. Combining this growth picture with material easing from key central banks, paints a relatively constructive backdrop for risk assets, including EM FX.

There is growing concern over disruption to global supply chains, given the now multiple rounds of tariffs in the US-China trade dispute. Despite all this, China’s current account and trade surplus look robust. This resilience is partly driven by a shift in the composition of exports away from the US and towards destinations like ASEAN and the Euro zone.

Mounting trade tensions are putting depreciation pressure on the RMB. We investigate contagion risk to the rest of EM from further RMB weakening. During the surprise RMB devaluation in august 2015, commodity currencies like the Russian Ruble and Colombian Peso were hit most, as markets traded weaker global growth and thus falling commodity prices. We see this as a good template for possible contagion effects now.

US tariffs should be imposing a strain on China’s balance of payments, most obviously in the current account. But the surplus is rising, in part due to quite healthy exports. Instead, trade tensions may be manifesting in capital outflows, which are above 2012 levels and half 2015/6 levels. Tariffs may be raising RMB depreciation expectations, an issue of great importance to China’s policy makers and the rest of EM.

US tariffs are exerting depreciation pressure on the RMB, which we think could ultimately drive $/CNY well above 7.00. One illustration of that depreciation pressure is a $/CNY rate now back in the upper (weaker) half of the band around the fix. Another visualization are large residuals in our fixing model, which point to policy makers keeping RMB temporarily strong.

Despite the shift in the Fed's stance, the Dollar has refused to fall versus the rest of the G10. One reason is that other central banks are also shifting dovish, which limits the scope for interest differentials. Another is that the importance of rate differentials as a driver of FX has fallen, such that the dovish Fed shift now carries less signal for the Dollar. The Dollar is "stuck," a dilemma for policy makers who want a weaker currency.

Our global growth tracker has fallen to its lowest levels since 2015, driven by a sharp drop in manufacturing sentiment around the world. The evidence points to normal ups and downs in global manufacturing, with some early signs that hard-hit places like Germany are turning up.

We scan across EM for where – besides Turkey – growth is heavily credit dependent. Colombia, Russia, Indonesia, Brazil and Poland have growth heavily linked to credit.

The Fed has undertaken a remarkable dovish shift so far this year, which some believe has further to run given this year’s review of policy. From a global perspective, this dovish Fed shift is potentially destabilizing. If the Fed succeeds in running the economy hot, longer-term yields will rise, a downside risk to our already more cautious EM capital flow projections.

Last year’s sudden stop in the BoP gave rise to a severe credit crunch, cutting the current account deficit and reducing external vulnerability. But the credit expansion in Q1 of this year undid a lot of that progress. We see much of recent Lira weakness through this credit-focused lens. The way forward lies in shifting Turkey away from credit-led growth.

Another credit expansion has been underway during Q1 of this year, and again coincided with rising volatility in the $/TRY exchange rate. Volatile markets necessitate a shift away from credit-driven growth, to a new growth model with an emphasis on structural reforms.

We see global growth worries as overblown. US data are catching down with elsewhere, but that was inevitable and to be expected, a normal sign of global business cycle swings. We lower our growth forecasts modestly, but continue to see a solid overall picture.

Lesson #1: Don’t engineer an outsize credit boom into a global tightening cycle. Lesson #2: Current account-based estimates of FX fair value are really important. Lesson #3: After a decade of G-3 monetary easing, EM has a positioning overhang. Lesson #4: Imposing a tariff on China is a negative shock that weakens the RMB. Lesson #5: Don’t get hung up on stories the Fed is shifting hawkish. It isn’t.

EM Asian currencies have historically exhibited "fear of floating," with many countries using official intervention to stabilize exchange rates. W.

Turkey over the summer experienced a large negative credit impulse, driven by the "sudden stop" in the balance of payments in early August. Exter.

We compare FM to EM across key macroeconomic outcomes. FM grew less than EM in the long run but saw lower volatility. FM fell behind in convergence to.

The Lira has fallen 30 percent in real terms in recent years, after trend depreciating in real terms for many years prior to that. We screen EM for.

The recent Lira sell-off follows many years of trend depreciation, such that the currency is now materially undervalued in our models. Turkey's bal.

We scanned EM for external vulnerability earlier this year, and found risk was the highest in Argentina and Turkey. We develop a companion toolkit.

A central debate in markets continues to be whether the Dollar will rise or fall. This debate tends to brush over the fact that there are two versions.

The recent RMB devaluation is raising fears a currency war is imminent. RMB declines have undone strength from early 2018, a natural up and down. But.

The RMB had been on the sidelines of growing trade tensions, but its recent weakness is raising fears of competitive devaluation. We continue to th.

We recently estimated an annual financing need around $15 bn for Argentina, on benign assumptions for the current account, debt rollover and capita.

EMs with large external funding needs are under pressure. The Turkish Lira is one of the currencies in focus. We present external funding scenarios to.

We have been writing on the growing vulnerabilities across EM, where we have been focused on two countries: Turkey and Argentina . Given recent dev.

Labor force attachment has been studied extensively for DMs, "¦ where participation has risen among women and older workers. We document key trends in.

Mounting trade tensions reflect past and present currency manipulation. We document the "fear of floating" that exists in countries across EM Asia, ..

Demonetization and GST were quasi-natural experiments, with profound and long-lasting impacts on the economy. This meant India missed the synchronized global recovery, but a rebound is underway from low initial conditions. Broad money has not recovered fully from demonetization, but credit growth and capital flows will support investment. Easing appreciation pressure will be positive for exports, even though structural competitiveness issues remain.

We have been focused on rising risk to emerging markets, especially where idiosyncratic factors point to vulnerabilities . Official intervention ca.

Argentina's fiscal position worsened under the Kirchner administration. The current government is committed to redressing the situation, and is imp.

Markets are turning less friendly towards carry trades, which is weighing on EMs with large external funding needs. Earlier this year we scanned EM.

We recently introduced a new activity tracker for China. That tracker displays far more swings than the official GDP data. We explore if swings in cre.

We discuss why global growth was so synchronized last year, which we trace back to the Shanghai G20 meeting in February 2016. That meeting followed.

China's real GDP growth has been very stable since 2015, unlike its main trading partners, which continue to see normal variability. A new activity.

Global trade tensions are on the rise, "¦ reflecting persistent current account imbalances. The US current account translates into a 10% Dollar overva.

China and Saudi Arabia are key members of the so-called "Dollar block." Both have in recent years experienced large declines in official reserves. In.

We provide a summary of the topics we have covered since June 2, when we published the first Global Macro Views that was called "The Big Questions." T.

EM currencies have sold off since the FOMC meeting on Sep. 20. We evaluate the risk of another "taper tantrum" and discuss how different currencies mi.

This GMV revisits some of the themes from our April Global Economic Monitor examining global growth. The upswing in business sentiment since the sta.

We look at where export volumes out- or underperformed relative to fluctuations in the real exchange rate, controlling also for changes in global grow.

We showcase the importance of Global Value Chains (GVCs) for world trade. Using granular trade data, we determine that US trade balance with the rest.

We update our model for the USD/CNY fix, concluding that USD/CNY could still fix lower for some time, given that the RMB in trade-weighted terms is st.

We dig deeper into services exports, and consider what the growing importance of services trade will mean for the global economy. Using a new dataset.

The striking slowdown in world trade growth over the past five years has been the subject of much research. In the first of a two-part series on trade.

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We examine how rising global interest rates might impact growth in emerging markets, differentiating between countries where growth has been consumpti.

We are introducing a new publication, which we are calling Global Macro Views . This product aims to complement existing IIF research, by discussing b.

In the months since the election, the ability of Dollar moves to explain USD/CNY fixings is down sharply.' We interpret this regime change as a de fa.

We estimate a simple model that examines the role that Dollar direction plays in the fixing mechanism. Prior to Nov. 8, the fixing displayed asymmetry.

The sharp decline in the current account surplus,' which fell over $100 billion last year, was driven by a drop in the goods balance, not services.' W.