Quantitative Easing tapering – who benefits and who suffers?
While some countries will benefit from Quantitative Easing tapering, others will suffer, says a global poll including over 1,000 business decision makers released today by FTI Consulting Inc.
According to the poll, Spain is forecast to suffer the most from the effects of Quantitative Easing (QE).
According to the survey, as QE is further reduced and investments start flowing in a different direction, the following markets will be either benefit or suffer:
- South Africa
Even though the Eurozone’s outlook has improved, Spain’s unemployment and inflation rates undermine the country’s confidence in being able to cope with QE tapering.
FTI consulting wrote “The disparity in the perceived resilience of emerging markets shows a clear divide between those with an independently functioning economy, for example, China and Russia, and those reliant on foreign investment for economic growth, such as Brazil, Indonesia and South Africa.”
Rising inflation is the major concern
On being asked when QE tapering should occur, business decision makers said it should be linked to rising inflation above all other options.
Sixty-eight percent of business leaders (80% in emerging markets) said inflation is the number one concern in their economies over the next five years.
Respondents cited the following factors as major threats to business over the coming year:
- rising labor costs
- the cost of finance
- increasing supply chain/raw materials prices
All these factors would be intensified if inflation increased.
FTI Consulting says the poll suggests that the US Federal Reserve’s QE tapering announced last month has the potential to cause considerable shifts in investor intentions as it further reduces its stimulus program.
QE tapering will make some emerging markets less attractive
Government bonds, equities and corporate bonds will become less attractive, more than 40% of respondents predict. One fifth of all respondents said they are less likely to invest in Turkey, Poland or Indonesia when QE is tapered.
Mark Malloch-Brown (Lord Malloch-Brown), Chairman of Europe, Middle East and Africa at FTI Consulting, said:
“It is clear from our global business poll that the same degree of management and coordination is needed to unwind QE as was applied when introducing the program. The global economy is more interlinked now than ever before so a lack of synchronization across the central banks deploying QE could have drastic destabilizing effects.”
The Federal Reserve should take into account the serious concern over interest rates and inflation in the global business community, Malloch-Brown believes.
Businesses need to be prepared for the different scenarios that may present themselves this year, such as rising borrowing costs, inflation destabilization, and an exodus of capital from some emerging markets.
“Should central banks take measured steps to protect the progress made by MINT and BRIC nations, growth in economies such as Indonesia and Turkey may well avoid suffering stunted growth as feared by our respondents.”
“The risk associated with emerging markets remains high, but the way in which QE tapering is applied can play a role in either enabling growth or throwing currencies and economies into turmoil.”
In 2009, former Federal Reserve Chairman Ben Bernanke said that what the US was doing was ‘credit easing’, rather than ‘quantitative easing’ (which is what the Bank of Japan had done).