OREANDA-NEWS. The strength of the US dollar is the single most important issue facing emerging-market (EM) economies and it is critical to consider nominal dollar incomes in assessing countries' relative economic performance and prospects, says Fitch Ratings in its latest Global Perspectives commentary.

Fitch estimates that dollar GDP for the 30 biggest EMs contracted by 6.6% in 2015. Our latest GDP and exchange rate forecasts suggest that dollar income will fall again in 2016, and the combined two-year decline will be slightly larger than that of 1998-1999. The current episode is also broader than 1998-1999, with dollar GDP falling in 23 of the 30 largest EMs last year, compared to 16 in 1998.

There are three primary reasons for EM "dollar recessions": lower commodity prices (more broadly, unfavourable changes in the terms of trade); dollar appreciation; and GDP contractions in local currency terms. Unfortunately for EM policymakers, two of the three - commodity prices and the dollar - are largely beyond their reach, although several central banks have made failing attempts to resist the strengthening of the dollar, running down foreign exchange reserves before giving way to overwhelming exchange rate pressures.