Start with American policy. Markets knocked for a loop by Omicron sagged further on November 30th, after Jerome Powell, the chairman of the Federal Reserve, suggested that the central bank might accelerate its plan to taper its asset purchases. Thanks to the critical role of the dollar and Treasury bonds in the global financial system, a more hawkish Fed is often associated with declining global risk appetite. Capital flows towards emerging markets tend to ebb; the dollar strengthens, which, because of the greenback’s role in invoicing, reduces trade flows.
Threats to growth in emerging markets
The news, as the second anniversary of the pandemic nears, could be better. The emergence of a covid-19 variant, labelled Omicron, has sparked a wave of selling on financial markets, seemingly on concern that a new highly transmissible strain of the virus could set back economic recoveries worldwide. With luck, Omicron may prove manageable. But continued disruptions from various variants of covid-19 represent just one of three formidable forces that will squeeze emerging markets in 2022, alongside tighter American monetary policy and slower growth in China.