Emerging Economies Feeling Growing Pains
For the last decade, the emerging market economies have been the envy of the many nations, particularly those staggered and stumped by the global recession. In the last year, however, the shine has come off the emerging market stars as those economies have started to grow at a slower pace.
Collectively, emerging markets may (just) match last year’s pace of 5 percent. The two prominent leaders of these emerging markets – India and China – their economic growth slowed to 4 percent and 7.8 percent respectively in 2012.
India did have several years of strong growth (11.2% in 2010 and 7.7% in 2011), while China’s economy grew by 10% per year for the last three decades.
“The immediate effect of this deceleration should be manageable. But the longer-term impact on the world economy will be profound,” The Economist reports.
Patrick Legland, head of global research at Société Générale, tells the Financial Times he sees China experiencing “a bumpy landing over the medium-term, with growth grinding persistently lower from 7.4 per cent in 2013 to 6 per cent in 2017.”
Several Factors Contributing To Slowdown
New York University economics professor Nouriel Roubini says one of the causes of the slowdown has been the movement of some of the emerging markets toward a version of state capitalism and away from the “reforms that increase the private sector’s productivity and economic share.”
The prominent role of state-owned enterprises, financing through state-owned banks combined with resource nationalism, trade protectionism, and imposition of capital controls have contributed to the slowdown.
“This approach may have worked at earlier stages of development and when the global financial crisis caused private spending to fall; but it is now distorting economic activity and depressing potential growth.
Demographics Will Exacerbate Slowdown
One of the reasons that the slowdown is likely to continue is demographics – both are facing the challenge of maintaining pace as their workforce population ages.
“Some developing economies will add hundreds of millions of new workers in coming years. But some of that contribution will be offset by the ageing of populations elsewhere. China’s working-age population began shrinking in 2012. India, with more favorable demographics, is struggling to create enough employment; it added no net new jobs between 2004-05 and 2009-10, according to a recent survey,”