MARKET PERSPECTIVE - Rising Protectionism and Financial Risks Create Headwinds for Emerging Markets

The Monetary Authority of Singapore (MAS) stated that increasing protectionism could weaken the capacity of international trade to alleviate domestic inflationary pressures. MAS emphasized that the emerging dynamics may lead to a pause in monetary expansion and even a return to interest rate hikes.

“Restricted financial flows can disproportionately impact emerging market economies, potentially hindering economic activity,” MAS added, noting that financial risks are high in many countries where budget deficits are expected to widen due to limited fiscal consolidation and, in some cases, the expansionary attitudes of newly elected governments.

In this context, MAS highlighted that emerging markets are vulnerable to volatility in exchange rates and capital flows, and that policymakers should safeguard the space for agile responses.