The economic effects of a stronger dollar

• A stronger dollar might help exports for some emerging markets, but through other channels it could have a negative impact on growth and financial stability. Our analysis suggests a re‐run of the crisis conditions of 1998-99 is unlikely, but there are areas of significant vulnerability. The dollar's strength reinforces our view that emerging growth will slow in 2015, to the slowest pace since 2009 – with risks to the downside.
• Dollar strength may be negative for emerging markets via several channels – by increasing the burden of dollar‐denominated debt, by lowering key commodity prices, by choking off capital inflows and forcing up interest rates and by triggering private sector deleveraging. These channels will operate to different degrees in different countries, though overall emerging markets look less risky than they did at the end of the 1990s.
• Highly indebted countries with inflation problems and high commodity dependence are the most at risk from dollar strength. Looking across the various indicators of vulnerability we see Malaysia, Chile, Turkey, Russia and Venezuela as most vulnerable. Among the countries better placed to weather a strong dollar are China and India.