Meanwhile, as Chinese investment at home slows, it may undercut nations such as South Korea, Taiwan, Malaysia and others that often produce components for final assembly in China, the IMF said in a report last week.
The global slowdown will be at the top of the agenda when the IMF and World Bank hold their annual meetings in Tokyo this week. There is likely to be extensive discussion of the most acute threats to the world economy, which are still seen as coming from the developed world. These include the financial crisis in Europe and the prospect in the United States of dramatic government spending cuts and tax increases, dubbed the “fiscal cliff,” which are scheduled to take effect at the end of the year.
But economic experts at the IMF, World Bank and elsewhere are growing increasingly worried about threats arising in developing nations as well. These include concerns that the leadership transition in China this fall could interrupt any further opening of the Chinese economy. Meanwhile, the process of reform remains slow in Russia, India and elsewhere, potentially constraining economic activity.
Still, developing nations on the whole are still growing at a far faster rate, estimated at 5.3 percent for 2012, than the industrialized world, which is expanding at a tepid 1.3 percent this year, according to the latest IMF projections.
But developing nations remain largely dependent on exports to the developed world that have begun to wane – the IMF forecast a sharp slowdown in the growth of global trade.
“What we are looking at is a synchronized global slowdown,” said Nariman Behravesh, chief economist at the IHS Global Insight consulting firm. He said that the boost from stimulus spending by governments in 2009 and 2010 is diminishing and that weak economic conditions in the United States and Europe are undercutting exports from developing nations.
The global financial crisis that spiked in 2009 and the deep recession it caused saw dramatic decline in growth, trade and jobs. Governments and central banks around the world responded with a rush of measures aimed at boosting lending and rekindling economic activity. Governments teed up trillions of dollars in new spending.
In the process, developed countries ran up their public debts to levels not seen since World War II, and they are now constrained in spending more.
By contrast, most developing nations are not burdened by such steep debts. Still, many are hesitant to counter the current slowdown with government spending, said Hans Timmer, chief development economist at the World Bank.
He said leaders of countries such as India and China are concluding that the main barrier to economic growth is structural — in other words, their domestic restrictions on investment activities and foreign ownership. The flood of spending unleashed in 2009 and 2010, Timmer said, “helped them through the shock, and it helped the world economy, but it did not help their economic structure.”