Most emerging economies to grow this year, but the U.S. banking sector intensifies the risks: Report

Emerging markets are not in the eye of the storm coursing through the U.S. banking sector, but they are in its orbit. Major emerging market currencies were mostly unchanged in the days following the closure of Silicon Valley Bank, says Moody’s Analytics.

While the reversal flows raises concern about a broader global recession and its repercussions for emerging markets, it is too early to call for the curtain on the recovery of emerging markets. In a report titled 'Emerging Market View: Traversing a Storm', Moody's Analytics says "Grounded by our conviction that the U.S. banking system will hold firm, we are sticking to our call for most major emerging economies to grow this year. They will be supported by China’s economic rebound and the return of growth in Europe, and a Federal Reserve that must now balance risks to financial stability as well as inflation."

While the expectations for U.S. growth this year and next are pared, the outlook for emerging economies is largely intact. Further, the report says elevated interest rates and uncertainty over the business and political climate will weigh on consumer and business spending and make growth this year barely positive. There is little that high commodity prices can do to reverse this.