Regional currencies are under threat.
Challenging economic conditions in emerging markets could lead to massive capital outflows for Asian economies, Singapore’s Ministry of Trade and Industry (MTI) warned in its annual Economic Survey.
The MTI noted that downside risks have increased as China’s slowing economy exacerbates softening global growth.
In particular, the report warned that if China’s aggressive economic reforms result in a significant drop in demand, regional economies will face heightened financial market volatility.
Increased volatility could in turn have negative spillover effects on the real economy, and the impact of the resulting slowdown could also be amplified through the financial system, the report said.
“With sustained low commodity prices and the beginning of the normalisation of US monetary conditions, regional countries could face sudden and large capital outflows, resulting in added pressures on their currencies and asset markets,” the MTI noted.
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