Raju Huidrom, M. Ayhan Kose, and Franziska L. Ohnsorge
Emerging market economies were once conferred darling status. And seemingly rightly so. In the two decades after the mid-1980s, emerging markets, with their record-high growth, transformed the global economic landscape. Their resilience during the global financial crisis provided a much-needed anchor for the world economy. Emerging markets bounced back from the crisis when the majority of advanced economies went through historic recessions.
This striking story, however, has taken a somewhat different turn of late. Since 2010, growth in emerging market economies has slowed and, at 3.8 percent in 2015, is below its long-term average (see Chart 1). The current slowdown in emerging market economies is unusually synchronous and protracted and is comparable to earlier episodes of global turmoil. In particular, the current slowdown affects some of the largest emerging markets—the diverse group of countries dubbed BRICS (Brazil, Russia, India, China, and South Africa)—with India the notable exception. The slowdown reflects easing growth in China, persistent weakness in South Africa, and steep recessions in Russia since 2014 and in Brazil since 2015.
External and domestic as well as cyclical and structural factors have contributed to the slowdown in emerging markets. The growth slowdown, which began in 2011, was initially driven by external factors, such as weak world trade, low commodity prices, and tightening financial conditions. But since 2014 domestic factors—including a steady slowdown in productivity growth, bouts of policy uncertainty, and tighter government budgets that have made it difficult to stimulate economic activity—have become increasingly important. Decelerating potential growth—that is, the speed at which an economy could grow—accounts, on average, for one-third of the slowdown in emerging market growth since 2010. Much of the decline resulted from a slowdown in productivity growth, which, in part, reflects an aging population.
Huidrom, Raju, M. Ayhan Kose, and Franziska Ohnsorge, forthcoming, “Growth Spillovers from the Major Emerging Markets,” World Bank Working Paper (Washington).