Signs of global economic slowdown cast shadow over international markets
| Pages | 95-96 |
Page 95
Investors' low expectations of the global economy contributed to lower yield curves, widening credit spreads, and further declines in already weak equity markets during the fourth quarter of 2000, according to the March 2001 Quarterly Review: International Banking and Financial Market Developments released by the Bank for International Settlements (BIS).
Market attention was focused on the United States, where economic data reinforced concerns that a slowdown would continue during the first half of 2001.
Market movements also revealed how much the U.S. outlook had led to a reevaluation of growth prospects in other regions. An appreciation of the euro implied investor optimism about the European economy, but a downward shift in the euro swaps curve showed that Europe is not immune to the impact of a U.S. slowdown. The yen depreciated and the Tokyo stock market declined-signs that investors perceived a return to weaker growth in Japan (see chart).
Emerging market countries deposited a record $54 billion in BIS-monitored banks in the third quarter. Members of the Organization of the Petroleum Exporting Countries (OPEC) accounted for one-third of that figure. Among developing countries outside OPEC, the largest deposits came from Taiwan Province of China and China. Unlike in the 1970s, however, these deposit flows were not recycled back into developing countries. In fact, cross-border claims on developing countries have remained broadly unchanged since the last quarter of 1999, with further repayments from Asia offsetting modest amounts of credit extended to Argentina, Brazil, and Turkey and a few other emerging market countries. During the first three quarters of 2000, cross-border claims on Turkey rose by substantially more than on any other developing country, and more recent data suggest that these claims continued to increase in the fourth quarter, despite concern about the stability of Turkey's financial system. Claims on Russia dropped most sharply among emerging market countries, down over $3 billion, owing to debt restructuring rather than a cutback in credit.
Borrowing conditions deteriorated in the fourth quarter of 2000. Although aggregate net issuance actually rose 21 percent from the previous quarter, to $328...
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