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Emerging Market Sovereigns Vulnerable to Slowing US Consumer Demand

Thu 12 Sep, 2024 - 8:45 AM ET

Related Content: Emerging Markets Vulnerable to Potential US Consumer Weakness

ֳ-Hong Kong-12 September 2024: Emerging market (EM) sovereigns in Latin America and the Caribbean are among those most exposed to weakening US consumer demand, though some other EMs also have significant vulnerabilities, says ֳ.

ֳ’s baseline projects that US consumption growth will moderate from 2.2% in 2024 to 1.4% in 2025. A notably sharper slowdown could have significant implications for EM sovereigns, though we view this risk as low. Some of the main channels of impact would be via weaker US demand for goods imports and outbound tourism, potentially lower remittances, and the influence on financial channels and commodity prices. Rating effects would depend on the scale of US consumption weakness, sovereigns’ policy responses and their effect, as well as sovereigns’ rating headroom.

Weaker US consumption than under our baseline assumptions would likely affect countries where goods exports to the US are a key driver of economic performance, like Mexico (BBB-/Stable) and Vietnam (BB+/Stable). Outbound travel by US tourists would also fall, impacting several Latin American EMs, particularly the Caribbean islands. Remittances from the US could also be hit, affecting countries like El Salvador (CCC+), Guatemala (BB/Stable), Jamaica (BB-/Positive), Nicaragua (B/Stable) and Dominican Republic (BB-/Positive).

A sharper-than-expected US consumption slowdown could affect the outlook for US interest rates, which could be lower than under our baseline, and the US dollar, which could consequently be weaker. A weaker US dollar could support export competitiveness in EMs with dollarised economies, while easing pressure on vulnerable hard exchange-rate pegs. It would also reduce the burden of repaying US dollar-denominated debt in local-currency terms. Commodity prices would likely be lower under such a scenario, benefiting commodity importing EMs and hurting commodity exporters.

The report, “Emerging Markets Vulnerable to Potential US Consumer Weakness”, can be found at or by clicking on the link above.

Contacts:

Ed Parker
Managing Director, Global Head of Research, Sovereigns & Supranationals
ed.parker@fitchratings.com
+44 20 3530 1176
ֳ Limited
30 North Colonnade
London
E14 5GN

Shelly Shetty
Managing Director, Sovereigns
+1 212 908 0324
shelly.shetty@fitchratings.com

Duncan Innes-Ker
Senior Director, ֳ Wire
+852 2263 9993
duncan.innes-ker@thefitchgroup.com





Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@thefitchgroup.com
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Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: elizabeth.fogerty@thefitchgroup.com

The above article originally appeared as a post on the ֳ Wire credit market commentary page. The original article can be accessed at . All opinions expressed are those of ֳ.


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