• The global economy is about to enter its “third dip” (after the subprime and the Eurozone crises). The IMF just revised downwards its 2016 forecast for global growth to 3.4% (from 3.6%) and the World Bank to 2.9% for real GDP growth (down from 3.3%). Most likely these figures will end up being lower: they invariable are! If, as these institutions contend, a sustained reduction of one percentage point in growth among the BRICS reduces growth in emerging markets (EM) by 0.8 percentage points and in the world by 0.4 percentage points, global growth in 2016 will not exceed 2.5% – at best. There are two main reasons for this: (1) China’s growth will decelerate further (below their estimate of 6%+); (2) low commodity prices will hit Brazil, Russia and South Africa harder than anticipated.
  •  In 2016 all EM will come under severe stress. Circumstances combining substantial, yet rising, capital outflows with the end of a credit binge mean that any room for manoeuver to soften the blow will be further squeezed. The EM corporate debt denominated in USD (4.4 trillion in total – four times higher than in 2008) is particularly at risk. Some of it is “camouflaged” sovereign debt: bonds that offer implicit sovereign guarantee without appearing on the governments’ balance sheet. Beware of the day when bondholders call into question this implicit sovereign backing (as they did with Dubai World in 2009).
  •  When trying to gauge the future health of an economy, a simple rule works best: look at what the smart local money is doing. Entrepreneur and investor decisions as to whether to keep their capital at home or to export it abroad tell us much about the direction in which a country’s economy is going. By this standard, new figures for China are ominous. Last year, net capital outflows amounted to USD676bn. They accelerated in the last quarter, thus it seems likely that the RMB will depreciate beyond the 6% of the past 5 months, possibly by another 10-15%.

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