Emerging markets have experienced some of the worst scarring from the pandemic, resulting in lower growth than had been projected. China, which gets half its oil imports from the Persian Gulf, is struggling with a collapse in the real estate market and its weakest growth in nearly three decades.
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This month the U.S. Federal Reserve will raise interest rate by 25 basis points to the 5.25%. UAE will follow suit.
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Interest rates rose. For years banks booked low fixed-rate loans. They comprise 80% in France, 85% in UK and 90% in US. Banks now face losses on them. Loans at variable rates can charge more but risk a wave of defaults from borrowers.
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Silicon Valley Bank (SVB), which served tech start-ups, shut down after a rapid slide in deposits. Its clients were struggling to raise cash, thanks to a tech downturn, and had to withdraw deposits.
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A year ago the Federal Reserve launched its first attack against inflation. Subsequent months saw much larger hikes, reaching 4.5%, with inflation falling to 6.4%, down from 11% last summer.
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The Federal Reserve won’t be able to get US inflation down to its 2% target without “crushing the economy,” economist Mohamed El-Erian warned, “You need a higher stable inflation rate of 3% to 4%, not 2%”.
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