Inflationary Pressures, Dollar Hike Put Emerging Market Under Pressure In 2023

Euromonitor International, in its report, revealed that inflationary pressures in the emerging economies are expected to persist in 2023 as the high exchange rate of the US dollar, lower foreign exchange reserves and delayed pass-through of the higher energy and commodity prices add to the price pressures.

It, however, added that, “Inflationary pressures in the emerging economies are expected to persist in 2023 as the high exchange rate of the US dollar, lower foreign exchange reserves and delayed pass-through of the higher energy and commodity prices add to the price pressures. “

The reports stated that potential energy price hikes, ongoing de-globalisation, structural labour market problems and faster-than-anticipated economic recovery in China remained among the key risks that could accelerate price growth in 2023.

In addition, consumer purchasing power in 2023 is forecast to be further eroded by stubbornly high prices of essential goods and rising interest rates.

While Global inflationary pressures are forecast to continue to ease in Q1 2023, under the baseline scenario, global inflation is forecast to reach 6.5% in 2023 and then fall to 4.5% in 2024.

The notable and credible research platform also said that slower global economic growth and consequently weaker demand in large part help to cap the inflation growth.

The economic monitor in its futuristic analysis opined that faster economic growth in China could accelerate commodity price growth in 2023. It explained that China’s economy slowed down as the country handled a disruptive reopening of the economy after the U-turn on its zero-COVID policy that it announced in December 2022.

“Faster economic growth in China could increase inflationary pressures through higher commodity prices, as China is among the largest consumers of metals and energy. It could also in turn, spark commodity price increases in the second half of 2023, with the biggest effects expected on the metals, energy and agricultural commodities.

“For example, China’s construction sector accounted for 12 per cent of global spending on metal products while China’s electronic components industry consumed nine per cent of the global hi-tech goods in 2021,” the report stated.

Euromonitor reaffirmed that higher prices are likely to erode consumer income gains and hurt consumption.

The international business research body averred that the cost-of-living crisis largely affects the low-income consumers in the emerging markets, which indicated that low-income consumers in emerging markets experienced faster living costs growth over the period 2018-2023 as they spend a higher proportion of their income on essential goods and are thus more impacted by food price or housing cost increases.

Moreso, it stipulated that high savings accumulated during the COVID-19 pandemic helped temporarily to cushion inflationary effects and support spending growth, an effect it presumes will continue to wane as consumers face rising costs of essential goods.

This, it maintained, will become a multiplier effect as higher interest increases housing costs and limits consumer willingness to finance purchases of big-ticket items through debt.

“Inflation in the U.S. is predicted to reach 4.0 per cent in 2023 and 2.5 per cent in 2024. Lower prices of energy and manufactured goods, as well as the effect of the higher interest rates help to cap the inflation.

In another projection, it predicted that inflation in China is forecast to increase slightly to 2.5 per cent in 2023 and 2.3 per cent in 2024 while the reopening of the economy and relaxation of pent-up demand is expected to drive up inflation slightly.

“Inflation risks in the Eurozone have eased slightly although high energy prices continue to add to the inflationary pressures. The largest Eurozone economies with high dependence on energy imports, i.e. Germany, Italy and Spain, are forecast to see inflation rates of 6.7 per cent, 7.2 per cent and 4.5 per cent, respectively.

“In 2023 the Cascading effects of the higher energy prices to other sectors and potential removal of energy subsidies to households are among the highest inflationary risks in the Eurozone. Elimination of Russia from Europe’s gas market and growing demand for gas in China are also the potential risk factors to consider that could accelerate inflationary pressures in 2023.”