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A dark shadow over sovereign risk

BNP Paribas AMC

In a nutshell

BNP Paribas emerging markets focused economic research team has recently produced two thought-provoking pieces - one on sovereign risk in commodity exporters and the second one dealing with the fluid situation in China. Gain sharper insights on two key global issues from these two pieces.

A dark shadow over sovereign risk

A few commodity exporting countries are in a truly alarming financial situation. Although commodity prices have rebounded since February, there is still room for a downward correction. An emerging market sovereign debt crisis similar in nature and size to the Latin American crisis of the 1980s seems unlikely. Yet the financial buffers (foreign reserves and assets of sovereign funds that can be rapidly converted into hard currency) are eroding much faster than previously expected.

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China: Barely any respite

Thanks to the government's expansionist policy mix, economic growth has just barely levelled off since last March, principally lifted by an upturn in investment in public infrastructure projects and the real estate sector. In contrast, manufacturing investment and exports - the "traditional" components of growth - are still depressed, while private consumption and services - the "new" growth engines - have stalled since the beginning of the year. Medium-term prospects are becoming a little more uncertain given the difficult process of rebalancing between China's growth sources, as well as due to the continued increase in credit risks in the financial sector and the numerous constraints that make it harder to manage economic policy.

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