IMF Warns of Emerging Markets Slowdown (FT)

Researchers at the International Monetary Fund (IMF) have warned that emerging markets are suffering an unprecedented and broad-based slowdown that threatens the future of the global economy. Moreover, not only did emerging market growth stall in the wake of the financial crisis, it has kept falling across a wide range of countries and unlike in advanced economies, the IMF does not forecast a recovery.

According to the IMF’s estimates, a one percentage point slowdown in emerging market growth lowers growth in advanced economies by quarter of a percentage point because of reduced trade. That means the 2 percentage point reduction in emerging market growth since before the financial crisis could mean a 0.5 percentage point reduction in growth for rich countries such as the US plus it suggests the weakness in developing countries could be an important reason for the recent growth disappointments in advanced economies.

The IMF research paper (entitled: Growth Surprises and Synchronized Slowdowns in Emerging Markets—An Empirical Investigation) comes with the following and rather wordy abstract:

Output growth has slowed in several emerging markets since 2011—a remarkable feature for anon-crisis period in EMs. Such synchronized slowdowns were largely unanticipated by scholars and forecasters alike. In this paper we attempt to shed light on the main drivers of growth surprises and synchronized slowdowns in emerging markets post-global financial crisis. We find that lower trading partner demand was a key external factor in explaining these events during 2011–13, and that changes in external financing conditions have yet to play a role in EMs’ growth. On the domestic front, the withdrawal of the fiscal stimulus put in place right after the Lehman collapse is a relevant aspect in these episodes, compounding the effect of the weaker external demand. Idiosyncratic factors, such as structural bottlenecks with the potential to impair growth in a more lasting fashion, also seem to partly explain these events, as reflected in the larger residuals found in regression-based estimates for certain countries.

To read the whole article, IMF warns of emerging markets slowdown, which does a good job of translating the IMF paper into plain English, go to the website of the Financial Times.

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