By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF)on Thursday said growth in most emerging markets (Ems) has been slowing down since 2010-11 according to its staff discussion note titled: ‘’Emerging Markets in Transition: Growth Prospects and Challenges’’.
The report said after suffering important setbacks during the 1980s and 1990s, starting with the Latin American debt crises of the early 1980s and continuing with the Asian crisis of late 1990s, EMs enjoyed strong and robust growth in the 2000s.
The global lender said since EMs recovery from the global financial crisis peaked in 2010-11, their growth has been decelerating across since then.
IMF said emerging market growth increased by an average of 4¾ percent between 2000 and 2012, about 1 percentage point higher than the average observed during the previous two decades.
It said the strong growth performance was fairly broad-based, with 60 percent of EMs having higher growth in the 2000s compared to the previous decade.
The IMF report said 80 percent of EMs decelerated in 2012, and by end-2013, EM growth was on average 1½ percentage points lower than in 2010-11. ‘’This synchronised slowdown is comparable in its breadth and persistence to earlier crises, when growth in over 70 percent of EMs slowed at the same time for a period of 4-6 quarters,’’ the report said.
According to the report, the slowdown is not due to a crisis and while it’s synchronised nature points to potential common factors, such as weaker external demand and/or the normalisation of domestic demand from post-crisis peaks, ‘’its persistence suggests that structural factors may also be at play,’’ the IMF said.
It affirmed that there are also important differences in the magnitude of the slowdown across countries. IMF said for example, since 2010-11 China’s output growth slowed by 2¼ percentage points (to around 7¾ in 2013), Brazil’s slowed by 2¾ percentage points (to a mere 2¼ percent), while South Africa’s deceleration has been more tamed.
To check this slowdown in growth in the Ems, the IMF warned that henceforth continuing income convergence will be more challenging; therefore, it suggested that given the risks of facing a prolonged period of volatility in financial markets, policymakers in EMs will need to strengthen their macroeconomic policies and address their vulnerabilities.
Also, the IMF report advised that sustaining strong growth will require renewed emphasis on structural reforms. ‘’Reform priorities will depend on country-specific circumstances. Policymakers 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 said.
It said that for countries at lower income levels, including frontier economies the largest gains would come from reforms that prepare the economy to move up the value chain and develop new sectors, whereas at higher income levels, the gains would come from more innovation and technological development.
The IMF further affirmed that there are challenges to reforms; but nevertheless, Ems should create the political consensus to break powerful vested interests and the inter-temporal problem (short-term pain for long-term gain).
The global lender of last in the report advised on the need for a decisive and timely policy action, it said given the time to reach consensus and implement structural reforms, as well as lags for those reforms to have real effects, rebounding from the current slowdown and reclaiming the higher growth of the last decade will not be quick, easy, or uniform across countries. ‘’Early and decisive commitment to tailored reforms will have significant benefits over the longer term,’’ it said.