The Day at a Glance | January 10 2022

The Top

*IMF warns emerging economies they should be prepared for U.S. increasing its rates.

*We find ourselves in a more favorable position to carry out more aggressive actions against inflation: The FED could increase rates starting in March: James Bullard, St. Louis FED.

*Investment remained unchanged in Mexico during October (0% monthly; 7.6% annual); private consumption increased 0.2% monthly (6.8% annual).

*China will speed up investment in key infrastructure projects in order to back growth; stimuli will try to avoid flooding the economy with liquidity.

*Russia and the U.S. start negotiations in Geneva in order to sort tensions in Ukraine.

*Chinese authorities declare quarantine measures in Tianjin, close to the capital.

Economic environment

IMF warns of possible economic turbulence due to inflation. The International Monetary Fund assured that monetary normalization in the United States will have a limited impact on emerging economies, given the fact that the FED has made its plans known. Additionally, it expects foreign demand to compensate for less favorable global financial conditions. However, it warned that if salary increases in the United States and production chain disruptions continue, prices could grow more than expected and increase inflationary expectations, which would require more aggressive actions on behalf of the Federal Reserve and cause volatility among markets. In these circumstances, emerging markets could face capital flight risks and exchange rate depreciations. The IMF called on emerging economies to be prepared for these possible economic turbulences. The most vulnerable emerging markets are those that have high levels of public and private indebtedness (especially debt denominated in foreign currency) and current account deficits. The IMF suggests that emerging countries that face high inflation or have weak institutions to allow their currencies to depreciate and adjust their interest rates; while for economies with high levels of foreign debt, it suggests covering their exposure as much as possible. In its base scenario, the IMF forecasts solid growth in the U.S. and inflation that will become more moderate towards the end of the year. Nevertheless, risks are skewed upwards for inflation, which could force the monetary normalization process to occur more quickly. The agency will make its updated economic outlook report public on January 25th.