Mumbai, June 28:US rating agency Fitch Ratings has said the economic and credit outlook for emerging market economies is deteriorating, driven primarily by rapidly rising inflation.

"It is the surge in inflation, rather than the direct consequences of the global credit crunch, that is the principal threat to macroeconomic and financial stability in many emerging markets," said David Riley, Group Managing Director in Fitch's Sovereigns team.

"The risk faced by several central banks is that the failure to contain inflationary pressures will result in downward pressure on exchange rates - especially if the Fed surprises with earlier rises in US interest rates - leaving policymakers with the unenviable choice of either allowing currencies to depreciate, which in turn will stoke inflation further, or intervening in support of their currencies and raising interest rates much more aggressively with negative consequences for growth," Fitch said in its semi-annual Sovereign Review.

While economic growth and exports in Latin America have been buoyed by high and rising commodity prices, the terms of trade for commodity-consuming emerging Asia and Europe have worsened.

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