Press "Enter" to skip to content

Dollar is strong and that’s bad news for the World economy

World economy is slowing down and in the past impact of such economic issues used to be managed with growth in emerging markets but now there is a barrier to this mode of correction as the US dollar is very strong. American economy is also showing signs of weakness like the global economy and investors are looking for ventures and projects that can help to make their money grow. Though emerging markets like Brazil, India and South Korea are risky investments but they grow at a faster rate than developed nations like USA and Germany.

As these are driven by exports these markets are tied to ups and downs in commodity price movements. The recession that followed financial crisis of 2008 was pulled out of the crisis due to growing Chinese economy which provided the required boost to global economy by growing at the rate of 9 % on the back of strong domestic demand.

Strategist David Hauner of Bank of America told in a note that without China growth of global economy would have been negative in 2009. But circumstances have changed since then and now China cannot help the situation as its economy is also slowing down. It will be hard for other emerging markets to take its position and try to avoid global recession as the US dollar is strong. As most emerging economies borrow money in dollars they are vulnerable to strong dollar as it makes their debt expensive.

Weak US dollar can reduce the strain and allow emerging markets to enhance their pace of growth and reduce impact of global recession. Though the Federal Reserve has reduced interest rates twice to weaken the dollar but that has not helped the situation as expected. Complaints about strong US currency have mounted this fiscal and critics say that this can make American products less competitive in global markets.

Be First to Comment

Leave a Reply

Your email address will not be published. Required fields are marked *