Further evidence of a slowing global economy has increased downside risks for emerging markets and shrouded the outlook for the months ahead in an unusual amount of uncertainty, the IMF said today.
With Argentina teetering on the brink of crisis and Brazil set to sign a $15 billion International Monetary Fund pact to shield it from contagion, the lender's latest quarterly assessment of emerging market financing is bleak.
"Increasing confirmation of the global slowdown and heightened concerns about the potential for credit events within the emerging markets since the last quarter have increased the downside risks," the report said.
"These factors, along with the linkages between emerging markets and the scope for contagion, and fears of future contagion, are likely to be the key determinants that shape the outlook for emerging markets in coming months," the IMF said.
While problems in Argentina and Turkey have caused some contagion, most notably in Brazil, the IMF said such knock-on effects have been limited to date. But it cautioned that the potential for broader-based contagion remains.
So far there has not been a credit event or a 'full-blown' crisis in a major emerging market, the IMF report noted.
But while Brazil suffered during the second quarter of the year from contagion from its neighbor Argentina, other emerging markets, notably Mexico and Russia, acted as safe havens for investors. That marked a sharp difference from other crises when investors fled the asset class completely.
The IMF said it expects Russia to return to international markets by the end of the year or early next year.