Forex Flash: Emerging markets face growth headwinds – Goldman Sachs

FXstreet.com (Barcelona) - In an environment where an increasing number of EMs face binding growth constraints, local stories may continue to dominate price action relative to broad macro drivers. In this context, different policy choices could have varying implications for different asset classes. According to the Economics Research Team at Goldman Sachs, “Unchecked, imbalances could push yields higher, and FX and local equities lower still.”

“Our economic teams’ forecasts from earlier this year are consistent with a period of slower global growth at this point. Relative to the beginning of the year, the macro data picture has indeed softened, and the global cycle appears to have peaked for now (although we expect it to pick up again later in the year).” the team adds. Within EMs themselves, the most recent data have also been weaker. The broad-based price damage seen in EM assets is likely related to these present headwinds, including falling activity, EM capacity constraints and the adverse effects of DM easing in the EM space.