The global economy is volatile with dynamic alterations happening as we speak. Despite the vast difference between them, the developed and emerging markets are more closely knit than we can imagine. Macroeconomic distresses that the developed markets face simultaneously impact the emerging markets. This connection is two-fold with the financially susceptible emerging markets now also having the potential to incur global economic impact.

For the purpose of decoding economic jargon, let us first poise the question, what characterizes emerging markets and sets them apart from their more politically and financially stable counterparts? Emerging markets more often than not have larger populations and grow from exporting to developed countries due to a ready supply of cheaper labor and subsequently products made at lower cost. In the cases that their domestic demand advances, they may be able to also export goods and services. It is imperative to note that emerging markets rely on debt issuances from the developed market countries which automatically makes their currencies dependent on their counterparts’ currency fluctuation. Hence it is safe to say that market trends and swings occurring at global markets, especially the developed ones, have a direct impact on the emerging markets.

This naturally implies that recent macroeconomic woes of the developed markets will immediately seep through to the emerging markets as well, especially if their economies are already financially weak. A case in point is the distress of the Latin American economy that has taken a hard hit by the COVID-19 pandemic and was relying on government injected spending to contain socio political issues and keep the economy afloat. Set against a backdrop of income inequality, inflation, unstable political power plays and below average growth in their economy, this is a recipe for disaster paired with global recession and hikes in interest rates that are currently marking the developed markets. The Latin American economy will suffer further if the policies geared towards monetary constriction continue to prevail in the powerhouses that the U.S. and Europe are. Latin American countries will then go through momentous capital outflows and the added chance of devaluation in their currency. In the face of nonexistent private investment and the government’s failure to inject public spending in the economy due to massive debts and budget deficits, their economic growth might be furthered stagnated.

Global events such as invasions and unprecedented setbacks such as pandemics are also key culprits when it comes to distresses faced by emerging markets. The recent invasion of Ukraine by Russia and the record economic slowdown in China combined with the notorious COVID-19 Pandemic, are all key back drop agents in affecting the global economy. The rampant inflation and the era of recession that the entire world is undergoing, is especially worrisome for emerging markets as the situation of already volatile oscillations in the price of commodities are made worse by rising interest rates. As the global issues play out the emerging markets are hard hit by plight considering they have already amassed unfathomable amounts of debt to stay afloat during the Pandemic. A noteworthy example is that of the Sri Lankan economy that failed to keep up and ended up defaulting on its debt. While many others haven’t defaulted yet, they are still equally affected and face financial misery.

As far as investments are concerned, things aren’t looking too bright for emerging markets as well. Investors turn to emerging markets because they present the advantage of quicker growth than developed markets. A failure to keep up and derive results leads to investment funds being routed to other markets. Particularly the supply chain breakdowns owing to China’s slowdown and the hike in interest rates amid recessionary conditions have undone the engines of growth that had previously supported the rise of emerging markets since the past decades. As the pandemic-fueled liquidity begins to fade and these harsh economic realities set in, many economies will face substantial challenges.

The recent geopolitical tensions have poised the very likely scenario of tactical competition between nations as concerns regarding national security amount to more than the collective economic benefits of global trade. Interdependencies between markets imply that such a threat to shared benefits could impact emerging markets as well as the developed ones really hard particularly Asian markets primarily because they contribute a hefty chunk to the imports of developed nations such as the United States and even account for a third of imports in Europe. The emerging markets of Asian countries also boost global economic activity by amounting for half the total demand for global commodities. As the early signs of disintegration begin to show their cracks, it is prudent to look into the potential costs of disbanding global trade links between the struggling emerging markets and the power hungry developed ones.