NEW YORK, July 19 (Xinhua) — The U.S. dollar appreciation driven primarily by global financial risks last year had harder negative spillovers, especially for economic activity and imports, on emerging market economies than on developed economies, the International Monetary Fund (IMF) said on Wednesday.
The IMF said in its annual External Sector Report that the dollar’s real effective exchange rate rose by 8.3 percent in 2022 to its strongest level in two decades, amid a series of Federal Reserve rate increases to curb inflation and higher global commodity prices driven by the Ukraine conflict.
The negative real sector spillovers from dollar appreciations fell disproportionately on emerging markets, while the effects on advanced economies were small and short-lived, the IMF said.
In emerging market economies, a 10 percent dollar appreciation, linked to global financial market forces, decreases gross domestic product (GDP) output by 1.9 percent after one year, and this drag is expected to linger for two and a half years, according to the IMF.
In contrast, the negative effects on advanced economies are considerably smaller in size, with output reduction peaking at 0.6 percent after one quarter and are largely gone in a year, the IMF said.
Many emerging market economies also suffered worsening credit availability, diminished capital inflows, tighter monetary policy on impact, and bigger stock-market declines, the IMF said.
The report suggested that more flexible exchange rates and more anchored inflation expectations could mitigate negative spillovers to emerging markets. Enditem