For two years the focus on the Brics, which held a summit recently, has largely been on the economic impact of Covid. But new questions will soon emerge. The relative economic outperformance of advanced economies through the pandemic is largely on unprecedented fiscal and monetary stimulus. G4 central bank balance sheets, for instance, have increased sixfold between 2007 and 2021! This frenzied liquidity fest, however, cannot go on forever without fuelling asset bubbles and severely distorting the pricing of risk.
Policymakers will eventually have to pare back, and the immediate focus is on when the US Fed will begin to taper its asset purchases. Prospects of any taper, however, bring back painful memories for emerging markets. The 2013 “Taper Tantrum” started a multi-year trauma for these economies, resulting in local bond returns contracting 33% peak-to-trough across three years.
Read full opinion on TOI+
Views expressed above are the author’s own.
END OF ARTICLE