Jonathan Ernst/Reuters - International Monetary Fund Managing Director Christine Lagarde gestures during remarks on the state of the world economy at the Peterson Institute for International Economics in Washington, September 24, 2012.
Major developing countries such as China, India and Brazil were fast and forceful in battling the worldwide economic downturn of 2009, raising hopes that these dynamic economies would continue to serve as engines for global growth in the years that followed.
But now, these countries are struggling to sustain their dramatic expansion. Instead, they are slowing alongside — and in part because of — developed economies such as the United States and Europe.
Chia Woon Khien, the Singapore-based head of currency and rates strategy for Asia excluding Japan at Royal Bank of Scotland Group Plc, talks about the Indian rupee, Chinese yuan and other Asian currencies.
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In turn, the slowdown in the major economies of Asia and Latin America could undercut recovery efforts in the United States, which has been banking on exports to countries such as China to boost anemic job growth at home.
“We have to brace for years of morass,” said Pascal Lamy, director general of the World Trade Organization. “I don’t see where good news comes from.”
The International Monetary Fund on Monday downgraded its projections for growth in developed and developing economies. The agency now expects the world economy to grow by 3.3 percent this year and 3.6 percent in 2013, down slightly from estimates in July.
The projections for the euro zone were especially grim, with the region expected to contract by 0.4 percent in 2012 and eke out growth of 0.2 percent in 2013. The United States was forecast to trudge along through 2013 at a roughly 2 percent rate of growth.
These lackluster projections bode poorly for emerging economies that depend heavily on exports to Europe and the United States. China, for instance, is now expected to grow by less than 8 percent this year, dramatically slower than its double-digit expansion of recent years.
“Spillovers from advanced economies and homegrown difficulties have held back activity in emerging market and developing economies,” the IMF wrote. “Looking ahead, no significant improvement appears in the offing.”
Officials in developing countries are wary of addressing the current slowdown in the same way they tackled the previous crisis — by borrowing vast amounts of money to finance aggressive short-term efforts at boosting growth.
New stimulus programs have been cautious, and China in particular has been hesitant to take steps that might boost bank lending to consumers and businesses in the short term but add to deeper problems in the financial system.
Indian officials are more constrained this time around by high inflation and budget deficits. At the same time, their proposals for reform, which aim to put the economy on a sounder footing, face intense local opposition, particularly from small retailers who fear competition from multinational chains such as Wal-Mart.
Brazil has slipped from star-performer status as its growth slows and the country turns to new tariffs to try to make up for its declining edge in manufacturing.
“If there is a substantial slowdown in emerging and developing economies, this doesn’t bode well for the global recovery,” said Abdul Abiad, deputy head of the IMF’s research department.
As major emerging economies slow, they are likely to reduce their imports of machinery and high-tech products produced by more advanced countries. This trade has been a bright spot in recent years for countries such as the United States and Germany.
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