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Three Key Questions About the Slowdown in Emerging Markets

1. Are emerging markets slowing down? Yes. They have been slowing down for some time now. GDP growth has declined from 7 percent during the pre-crisis period (2003-8) to 6 percent over the post-crisis period (2010-13) to 5 percent, in our projections, over the next 5 years (2014-18).  This path is illustrated below in Chart 1. This last point stands out. Despite an uneven recovery, growth in advanced economies is projected to eventually recover. Not so for emerging markets.

[caption id="attachment_8140" align="aligncenter" width="300"]EMs chart 1 Chart 1[/caption]

More worrisome is the medium—term outlook, where projections have been revised down serially since 2010 (Chart 2). This feature of repeated downward revisions to future growth is unique to the current downturn. In the past, we expected growth to bounce back (and it did). This time seems different. And, to some extent, weaker productivity and lower potential growth may be to blame.

[caption id="attachment_8138" align="aligncenter" width="300"]EMs chart 2 Chart 2[/caption]

The slowdown is broad based. Growth rates are lower than the pre crisis average in more than 70 percent of emerging markets since 2012 (see the red bars in Chart 3). This “head count” indicates that slower growth extends well beyond the largest emerging markets like China and India.

[caption id="attachment_8139" align="aligncenter" width="300"]EMs chart 3 Chart 3[/caption]

2. Will this have implications for the world economy? Yes.  See the IMF's 2014 Spillover Report. The report highlights several key spillover channels and what we can expect.

3. Can anything be done to reduce risks associated with the slowdown? Yes. The report also talks about how international coordination and policy preparedness will be key.