## How Emerging Markets Can Get Their Groove Back

_IMF Blog, October 7, 2013_

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**Canonical URL:** [How Emerging Markets Can Get Their Groove Back](https://www.imf.org/en/blogs/articles/2013/10/07/how-emerging-markets-can-get-their-groove-back)

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## Bibliographic details
- Authors: Kalpana Kochhar, Roberto Perrelli
- Published: October 7, 2013

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### Current situation and magnitude of slowdown
- 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.
- Growth has been slowing in roughly three out of four emerging markets.
- Such synchronized and persistent slowdowns typically have only occurred during acute crises in the past.

### Drivers of the slowdown
- Cyclical forces:
  - Softer external demand.
  - Recently tightening financing conditions (after a period of easy financing).
- Structural bottlenecks:
  - Infrastructure constraints.
  - Labor market frictions.
  - Power sector weaknesses.
- Offsetting factors that had been supportive:
  - Supportive domestic macroeconomic policies.
  - (Still) favorable terms of trade.
- Unexplained component:
  - A non-trivial portion of the slowdown remains unexplained, suggesting other common factors affecting emerging markets.

### Outlook and revisions to growth potential
- Growth potential is unobservable and may have been overstated after a decade of cheap financing and rising commodity prices that boosted investment and growth.
- 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.
- Implication: Policymakers need to recognize that emerging markets will likely grow at lower rates than in the past to avoid over-stimulation and the generation of imbalances.

### Policy implications and recommended priorities
- Short-term monetary/fiscal countercyclical demand management will not be sufficient on its own.
- Priority areas to generate higher sustainable growth:
  - Identify reform priorities to remove supply bottlenecks.
  - Boost productivity.
  - Move economies up the value chain.
  - Push ahead with infrastructure investment.
  - Improve the business climate.
- Timing and urgency:
  - Structural measures take time to implement and the economy responds with natural lags.
  - The need for decisive policy action is now to avoid the risk of a lost decade.

### Risks from global financial conditions and investor differentiation
- Imminent tightening of global interest rates (e.g., U.S. Fed tapering announcement) has led to:
  - Large and disruptive capital outflows in some emerging markets.
  - Sharper exchange rate depreciation and bond-yield increases in more vulnerable emerging markets (those with high and growing current account deficits and high inflation).
- Investors will increasingly differentiate between emerging market countries according to:
  - Their policy frameworks.
  - The health of their balance sheets.

### Event
- High-level seminar at the IMF:
  - Emerging Markets: Restoring the Momentum seminar.
  - Tuesday, October 8, 3:00 p.m. – 4:30 p.m. EST.
  - Join the conversation on Twitter using hashtag #EmergingMkt.

*Kalpana Kochhar, Roberto Perrelli — October 7, 2013*

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## References

- [عربي](http://blog-montada.imf.org/?p=2501)
- [https://www.imf.org/wp-content/uploads/2013/10/chart-growth-revisions-final.jpg](https://www.imf.org/wp-content/uploads/2013/10/chart-growth-revisions-final.jpg)
- [https://www.imf.org/wp-content/uploads/2013/10/chart-deceleration-incidence-final.jpg](https://www.imf.org/wp-content/uploads/2013/10/chart-deceleration-incidence-final.jpg)
- [Emerging Markets: Restoring the Momentum](http://www.imf.org/external/AM/2013/seminars/emerging/index.htm)

_Source: https://www.imf.org/en/blogs/articles/2013/10/07/how-emerging-markets-can-get-their-groove-back_