Slowdown in Emerging Markets

A synchronous growth slowdown has been
underway in emerging markets (EM) since 2010. Growth in
these countries is now markedly slower than, not just the
pre‐crisis average, but also the long‐term average. As a
group, EM growth eased from 7.6 percent in 2010 to 4.5
percent in 2014, and is projected to slow further to below 4
percent in 2015. This moderation has affected all regions
(except South Asia) and is the most severe in Latin America
and the Caribbean. The deceleration is highly synchronous
across countries, especially among large EM. By 2015, China,
Russia, and South Africa had all experienced three
consecutive years of slower growth. The EM‐AE growth
differential has narrowed to two percentage points in 2015,
well below the 2003‐08 average of 4.8 percentage points and
near the long‐term average differential of 1990‐2008. The
recent slowdown in EM has been a source of a lively debate,
as evident from the quotations at the beginning of this
note. Some economists paint a bleak picture for the future
of EM and argue that the impressive growth performance of EM
prior to the crisis was driven by temporary commodity booms
and rapid debt accumulation, and will not be sustained.
Others emphasize that a wide range of cyclical and
structural factors are driving the slowdown: weakening
macroeconomic fundamentals after the crisis; prospective
tightening in financial conditions; resurfacing of
deep‐rooted governance problems in EM; and difficulty
adjusting to disruptive technological changes. Still others
highlight differences across EM and claim that some of them
are in a better position to weather the slowdown and will
likely register strong growth in the future. This policy
research note seeks to help move the debate forward by
examining the main features, drivers, and implications of
the recent EM slowdown and provides a comprehensive analysis
of available policy options to counteract it.