## Slowdown in Emerging Markets: Not Just a Hiccup

_IMF Blog, June 26, 2014_

## Source details

**Canonical URL:** [Slowdown in Emerging Markets: Not Just a Hiccup](https://www.imf.org/en/blogs/articles/2014/06/26/slowdown-in-emerging-markets-not-just-a-hiccup)

## Other formats

- [Markdown version](/en/blogs/articles/2014/06/26/slowdown-in-emerging-markets-not-just-a-hiccup/index.md)
- [Structured JSON version](/en/blogs/articles/2014/06/26/slowdown-in-emerging-markets-not-just-a-hiccup/index.json)
- [Bundle manifest](/en/blogs/articles/2014/06/26/slowdown-in-emerging-markets-not-just-a-hiccup/bundle-manifest.json)

## Bibliographic details
- Authors: Evridiki Tsounta, Kalpana Kochhar
- Published: June 26, 2014

---

### Overview
- Emerging market economies experienced strong growth in 2000-12, averaging 4¾ percent per year.
- In the last two to three years (prior to June 26, 2014), growth in most emerging markets has been cooling off, in some cases quite rapidly.
- The key question: is the recent slowdown transitory (a hiccup) or a sign of a more chronic condition?

### Main drivers of past growth
- Employment increases and accumulation of capital (buildings and machinery) remain the main drivers of growth.
  - Together they explain 3 percentage points of annual GDP growth in 2000–12.
- Improvements in total factor productivity explain 1 ¾ percentage points of annual GDP growth in 2000–12.
- The pickup in economic activity in the 2000s compared to the 1990s is solely explained by higher total factor productivity.
- Total factor productivity, after previous declines in Latin America and the Middle East and North Africa, is now on the rise across emerging market regions.
- Productivity improvements reflect both cyclical upsides during good times and structural (permanent) factors such as:
  - Reallocation of inputs to more productive sectors.
  - Gains from past reforms (deregulation, trade liberalization, financial liberalization).

### Assessment of the slowdown: cyclical vs. structural
- External factors account for a considerable part of the recent slowdown; domestic factors also play a role.
- On average, cyclical and structural factors are equally important in explaining the growth slowdown in emerging markets over the last few years.
- Implication:
  - The cyclical component implies some slowdown may reverse once advanced-economy growth picks up.
  - The structural component implies a more permanent reduction in potential growth for some countries.

### Lower potential growth and near-term outlook
- Estimates of potential growth rates in emerging markets for the next 3-4 years are 3½ percent.
- This implies growth would be on average 1¼ percentage points lower than in the 2000s.
- Factors explaining the anticipated slowdown in potential growth:
  - Expected moderation in investment (growth of the physical capital stock) as global interest rates rise and commodity prices stabilize.
  - Natural constraints such as population aging limiting the contribution of labor.
  - The need to slow growth in countries that allowed external and financial imbalances to build, in order to address balance-sheet risks.

### Policy implications and recommendations
- Policymakers in emerging markets should place renewed emphasis on structural reforms to raise productivity, which despite recent improvements remains relatively low compared to advanced economies.
- Structural reforms can include measures tailored to country circumstances (referenced IMF work discusses tailored structural reforms).
- Two possible country-level responses:
  - In some countries, transitioning to a slower potential growth rate may be desirable if it yields more sustainable and balanced growth.
  - In other countries, the slowdown can be an opportunity to reevaluate policies and undertake structural reforms to restore stronger growth, income convergence, and rising living standards.

*Source: Slowdown in Emerging Markets: Not Just a Hiccup — Evridiki Tsounta, Kalpana Kochhar, June 26, 2014.*

---

## Content in this bundle

- **Staff Discussion Note**
  - [Staff Discussion Note (Markdown version)](/external/pubs/ft/sdn/2014/sdn1406.pdf.md){rel="alternate" type="text/markdown"}
  - [Staff Discussion Note (PDF)](/external/pubs/ft/sdn/2014/sdn1406.pdf){rel="external" type="application/pdf"}

---

## References

- [https://www.imf.org/wp-content/uploads/2014/06/slowdown-in-ems-figure-1-rev.jpg](https://www.imf.org/wp-content/uploads/2014/06/slowdown-in-ems-figure-1-rev.jpg)
- [previous blog](http://blogs.imf.org/2013/05/29/on-a-roll-sustaining-strong-growth-in-latin-america/)
- [structural](http://www.imf.org/external/pubs/ft/fandd/2013/03/basics.htm)
- [previous blog](http://blogs.imf.org/2013/10/07/how-emerging-markets-can-get-their-groove-back/)
- [https://www.imf.org/wp-content/uploads/2014/06/slowdown-in-ems-figure-2.jpg](https://www.imf.org/wp-content/uploads/2014/06/slowdown-in-ems-figure-2.jpg)
- [our results](http://www.imf.org/external/pubs/ft/survey/so/2014/POL061214A.htm)
- [https://www.imf.org/wp-content/uploads/2014/06/slowdown-in-ems-figure-3-rev.jpg](https://www.imf.org/wp-content/uploads/2014/06/slowdown-in-ems-figure-3-rev.jpg)
- [recent IMF paper](https://www.imf.org/external/pubs/cat/longres.aspx?sk=41072)

_Source: https://www.imf.org/en/blogs/articles/2014/06/26/slowdown-in-emerging-markets-not-just-a-hiccup_