beyondbrics

The IMF World Economic Outlook update released on Tuesday makes pretty ugly reading, as Chris Giles reports in the FT, with world economic growth set to be significantly weaker than previously thought.

But what specifically does it mean for emerging markets? Here are 10 things we have learnt from the IMF report.

1) Emerging markets should “focus on responding to moderating domestic growth and to slowing external demand from advanced economies”. Many already have by cutting rates (Indonesia, Brazil). This is not too surprising.

2) Slowing growth in EMs is “possibly due to a greater-than-expected effect of macroeconomic policy tightening or weaker underlying growth”. Yes, possibly. We’ll move on to some actual figures.

3) The downward revision from the September projections for growth EMs is pretty much the same as for developed economies: both are down 0.7 percentage points for 2012, and for 2013 the forecasts are down 0.6 in DMs and 0.5 in EMs. The revisions are universal.

4) Of the revisions to the September projections, central and eastern Europe fared the worst of the emerging market regions, with a revision down of 1.6 percentage points for 2012. This is the same as the eurozone as a whole.

5) Of emerging countries specified in the revisions, Mexico fared the best with only 0.1 percentage points taken off the 2012 figure, with growth forecast at 3.5 per cent (previously 3.6).

6) Inflation is going up faster than the IMF previously thought: the 2012 figure is up 0.3 percentage points to 6.2 per cent and 2013 is up 0.4 to 5.5 per cent.

7) Imports and exports for 2012 have been cut heavily: for EMs, imports growth is down a whole percentage point to 7.1, and exports are down from 7.8 per cent to 6.1 per cent.

8) “Economic activity in the Middle East and North Africa is expected to accelerate in 2012-13, driven mainly by the recovery in Libya and the continued strong performance of other oil exporters.” High commodities can help.

9) And possibly the key part of the report, here in full:

In recent years, a number of major emerging economies experienced buoyant credit and asset price growth as well as rising financial vulnerabilities. This has buoyed demand and may have led to overestimation of the trend growth rates in these economies. Should the dynamics of real estate and credit markets unwind — triggered by losses in confidence and a paring back of expectations at home or by falling demand from abroad — the impact on economic activity could be very damaging.

10) That sounds like a hard landing. But there is hope:

Economies where inflation is under control, public debt is not high, and external surpluses are appreciable (including China and selected emerging economies in Asia) can afford to deploy additional social spending to support poorer households in the face of weakening external demand.

Economies with diminishing inflation pressure but weaker fiscal fundamentals (including various economies in Latin America) can afford to stop tightening or to ease monetary policy, provided they manage to control lending to overheating sectors (such as real estate) through macroprudential measures.

Those that suffer from both relatively high inflation and public debt (including India and various economies in the Middle East) may need to take a more cautious stance on any policy easing.

In other words: China has room for manoeuvre, everyone else has a delicate balancing act.

Related reading:
IMF warns over world economic outlook, FT
World Bank: grim and grimmer, beyondbrics