After a decade of high growth and a swift rebound after the collapse of U.S. investment bank Lehman Brothers, emerging markets are seeing slowing growth. Their average growth is now 1½ percentage points lower than in 2010 and 2011. This is a widespread phenomenon: growth has been slowing in roughly three out of four emerging markets. This share is remarkably high; in the past, such synchronized and persistent slowdowns typically have only occurred during acute crises.
Our analysis attributes the slowdown in part to cyclical forces, including softer external demand and in part to structural bottlenecks, for example in infrastructure, labor markets, power sector.
The current slowdown raises the question of whether emerging markets can bounce back to the growth rates seen in the last decade.
Strong external demand and developing supply chains brought higher growth through trade and specialization in the 2000s.Countries that managed their economies well in the “good times” had more firepower to deal with the global financial crisis. Conversely, economies with large external and financial imbalances, including much of emerging Europe, are going through a painful deleveraging process and have experienced a more uneven recovery.
Taking into account the fact that cheap financing and rising commodity prices over the past decade raised investment and growth in many economies, and the fact that those favorable tailwinds are fading, we estimate that emerging market’s “potential” growth needs to be revised down. IMF forecasts for growth five years ahead are down by 0.7 percentage points compared to October 2012. Market analysts have made similar downward revisions.
By Kalpana Kochhar and Roberto Perrelli
FMI
Our analysis attributes the slowdown in part to cyclical forces, including softer external demand and in part to structural bottlenecks, for example in infrastructure, labor markets, power sector.
The current slowdown raises the question of whether emerging markets can bounce back to the growth rates seen in the last decade.
Strong external demand and developing supply chains brought higher growth through trade and specialization in the 2000s.Countries that managed their economies well in the “good times” had more firepower to deal with the global financial crisis. Conversely, economies with large external and financial imbalances, including much of emerging Europe, are going through a painful deleveraging process and have experienced a more uneven recovery.
Taking into account the fact that cheap financing and rising commodity prices over the past decade raised investment and growth in many economies, and the fact that those favorable tailwinds are fading, we estimate that emerging market’s “potential” growth needs to be revised down. IMF forecasts for growth five years ahead are down by 0.7 percentage points compared to October 2012. Market analysts have made similar downward revisions.
By Kalpana Kochhar and Roberto Perrelli
FMI
