What effects in the world economy will the rise in rates have? How will it affect Spain?

  • US importers and tourists, investors in dollars and companies that sell to the United States gain with the rise in rates.
  • The Fed measure will appreciate the dollar and will hurt emerging economies, countries and companies with debt in dollars and tourism to the US.
  • In Spain, the most affected are the companies present in Latin America, but those with activity in the United States benefit.
  • The Fed raises US interest rates for the first time in a decade.
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Who loses with this rise in rates?

  • The countries indebted in dollars . “Emerging economies, heavily indebted in dollars, will be among those who suffer most from this decision,” says Daniel Pingarrón, market strategist at IG. These countries have borrowed heavily in dollars since 2008, taking advantage of the depreciation of the currency by the stimulus of the Fed. Now they will be clearly harmed by the potential appreciation of the US currency. For them it will be more expensive now to pay back their debts . And there are almost 10 trillion dollars of bonds issued in this currency by countries that are not the United States, fundamentally emerging. “An increase in the bankruptcy of companies in these countries is expected,” said a report by the insurer Crédito y Caución on Tuesday. Among the most affected: Turkey, Brazil and Russia.
  • Investment in emerging countries . Developing nations are one of the major concerns of international organizations for the rise in rates. Investors will now find it more profitable to invest in dollars, so emerging countries could lose deposits in their currencies. “The change in capital flows to the US led in the past to financial crises or breaches of emerging states.” The markets most vulnerable to this change are Turkey, Indonesia, South Africa and Malaysia explain in Crédito y Caución, however, Tomás García -Purriños, an analyst at MoraBanc AM , estimates that “a large part of the rate hike on Wednesday and the one expected for 2016 is already discounted”, so that the capital outflow “would have already taken place”.

 

  • The tourism sector of the United States . Travelers from other countries will see how currency exchange agencies will give them less dollars than before for the same amount of their national currency. So tourism in the United States could suffer, both in number and in the expense of travelers in the country.
  • US exporters and importers from other countries . The appreciation of the dollar will be harmful to the external competitiveness of its products. With a more expensive dollar, foreign buyers of US goods will now have to pay more money for the same good, so now, if they can stock up in other markets, they might decide to buy it in other markets.

And who benefits?

  • Savers and investors in dollars . The rate increase will increase the remuneration of deposits in dollars. It will not be an immediate effect, but a gradual one, and it will attract more capital to the US, especially if, as several analysts estimate, the rate hike continues next year until it reaches 1%. Investors would make their money more profitable in the United States than, for example, in Europe, where the rates are at 0.05% . And it could turn around the 2008 trend, in which capital flows left the United States to emerging countries in search of higher returns.
  • Importers from the United States and exporters from other countries . The rise in rates will cause the investment in dollars to grow, given that the retribution in that currency will be higher. So the decision of the Fed will produce an appreciation of the dollar against the rest of currencies . That stronger dollar will benefit US importers, who can buy the same products from other countries by paying less dollars for them; On the other side of the transaction, the exporting countries will have made their products more attractive and competitive so that they are bought in the United States.
  • American travelers and tourism from other countries . American tourists are in luck, because it will be cheaper for them to travel to other countries . And the most touristic countries are in luck, because they will see an increase in the number of travelers from that country and their spending.

How does it affect Spain?

  • Bad for companies based in Latin America . If the Southern Cone suffers due to the appreciation of the dollar, the business of Spanish companies in the region – Banco Santander, Telefónica or Mapfre – will also suffer from the possible contraction of demand in those countries . “In the case of the two large Spanish banks BBVA and Santander, the rise in rates leaves them a bittersweet taste: they will appreciate the foreseeable improvement in the margin of interest in their US subsidiaries, but they could see the problems they already have in their business worsened. Latin America “, explains Felipe López-Gálvez, an analyst at Self Bank .
  • Sell ​​in dollars, good business. A rise in rates, on the other hand, would be good for Spanish companies that generate a lot of income in dollars for developing a large part of their activities in the United States, such as Grifols , Viscofan or the ACS construction company. “For these companies, a strong dollar is good news,” says López-Gálvez.
  • Traveling to the United States will be more expensive . If the dollar is revalued more as a result of the rate hike -something that the market has already discounted in the last year, in which the euro has depreciated more than 10% against the dollar-, it will be more expensive for Spaniards travel to the US because they will receive less US currency for each euro. On the contrary, for the American it will be cheaper to travel to Spain , which will benefit our tourism sector.
  • The exporters to the USA are in luck . With a more appreciated dollar, it will be cheaper for Americans to buy Spanish products . “Although the effect on our exports would not be so great because most of them go to the eurozone,” Joaquín Maudos, professor of economics at the University of Valencia and deputy director of IVIE, recently qualified 20 minutes ago. In fact, exports to the European Union weigh almost 65% of Spanish sales abroad, by only 4.6% of exports to the United States. Now, with the appreciation of the dollar, exporters to the United States could see their sales increase.