Gross domestic product (GDP) growth for the fourth quarter (Q4) of 2021 accelerated in the United States (US), but slowed in Europe
Central bank actions varied from announcement of rate hikes in response to rising inflation, to even rate cuts to support growth
International oil prices rose rapidly on-month
If 2021 was marked by an encouraging rebound in global economic growth, 2022 has started with a concerted movement towards monetary policy normalization. Central banks across emerging and advanced economies are taking measures to taper asset purchases, and, in some cases, tighten policy (by raising rates) in response to rising inflation. The pace, though, is varying across regions. The US Federal Reserve, systemically the most important central bank, has announced that rate hikes are in order beginning March. The Bank of England (BoE), which started its rate hike cycle in December, continued with its hike for the second consecutive month. Meanwhile, in the east, the Bank of Japan has outlined continuation of its accommodative policy, while the People’s Bank of China is moving in an opposite direction: it cut rates for the second month.
Clearly, even though the pace of normalization varies, the Fed’s actions will likely put pressure on emerging markets to raise rates further. S&P Global (January 2022) states this will be the case, particularly for economies with higher dollar denominated debt. Hence, emerging markets may face volatility in financial conditions in the coming months, contingent on the pace of Fed tightening, and their own policy response to it.
