(October 8, 2013) — Emerging markets need to realise they are set to grow at a slower pace after the financial crisis, the International Monetary Fund (IMF) has said, but warned these countries’ governments there is still a lot to do.
“After a decade of high growth and a swift rebound after the collapse of US investment bank Lehman Brothers, emerging markets are seeing slowing growth. Their average growth is now 1.5 percentage points lower than in 2010 and 2011,” the IMF said in a note yesterday.
“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.”
The slowdown was in part attributed to structural bottlenecks in the areas of infrastructure, power supply and labour markets, but a “non-trivial portion of the slowdown” remains unexplained, the IMF said, suggesting there were other factors common to this group of nations at play.
Turning these economic fortunes around might be tougher than many expect, due to a drop-off in cheap financing and the fact that commodities boom of the 2000s has waned.
“We estimate that emerging markets’ ‘potential’ growth needs to be revised down,” the IMF said, citing a 0.7 percentage point drop in its five-year growth forecasts for these economies.
“At the risk of restating what may seem like ‘old hat,’ countries will need to identify reform priorities to remove supply bottlenecks, boost productivity and move their economies up in the value chain of economic activities,” the IMF advised. “This means addressing lingering barriers to long-term growth—pushing ahead with infrastructure investment and improving the business climate, for example. Countercyclical demand management policies will no longer do the trick.”
The organisation also advised these economies to get started on reforms straight away.
“Given the time it takes to implement structural measures and the natural lags with which the economy will respond, emerging market rebound will not be fast or easy. But they will have to start soon if they want to avoid the risk of a lost decade.”
The IMF is hosting a seminar on emerging markets today, Tuesday, October 8, at 3:00pm – 4:30pm EST.
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