New | Turkey, South Africa among victims of stronger dollar -- Moodys
The bull run of the US dollar will widen its value gap with most major currencies and result in major blows to some key economies that haven’t built up enough resilience against capital outflow from their domestic markets, a Moody’s report said.
Countries like Turkey and South Africa are in particular more vulnerable than the others to the strong US dollar and the changes in capital flows that it reflects, the rating agency said in a report released Tuesday, which cut the economy growth forecast for both countries this year.
“To the extent that the depreciations of the Turkish lira and South African rand in recent months are symptoms of shifts in capital flows away from these countries, economic activity will be negatively affected,” said Moody’s analysts led by Marie Diron.
To a lesser extent, Brazil will also got affected by adverse changes in external financing conditions due to a stronger dollar and that would push its economy further into recession. The agency forecast a 1 per cent contraction for the country this year.
While the US dollar appreciated by around 13.5 per cent against a broad basket of currencies (i.e. in effective terms) in the year to May 7, 2015, the Brazilian real depreciated by nearly 20 per cent.
On the other hand, the euro area may start to see economic growth to slow down from 2017 onwards as a more competitive currency does not address the structural weaknesses which constrain medium-term growth, it said. Japan’s weaker yen’s positive impact on its economy may be limited in the next two years, the report added.
Elsewhere, the report said China is comparatively little affected by global currency fluctuations and capital flows. Instead, its economic outcome will be mainly accounted for by domestic developments and policies.
