Developing nations continue to be the backbone of global growth, but face a series of headwinds including a slowdown in China, weak demand in advanced economies, low commodity prices and political strife, the IMF warned Tuesday.
The International Monetary Fund said the outlook for emerging markets was lopsided, with India a bright spot but sub-Saharan Africa enduring either tepid growth or recession as they are hit by a low demand for raw materials.
Once considered a key driver of global growth, developing nations have been battered since the financial crisis, as crucial custom from sputtering Western economies has dried up, while governments struggle with huge debts.
In an update to its World Economic Outlook the IMF said emerging economies had enjoyed “a period of relative calm in recent months” after the global turmoil unleashed at the start of the year by worries over China’s economy.
It also increased its forecast for expansion this year in developing nations, to 4.2 percent from 4.1 percent estimated in July, saying they would make up more than three-quarters of projected world growth.
But it said: “The outlook for these economies is uneven and generally weaker than in the past. While external financing conditions have eased with expectations of lower interest rates in advanced economies, other factors are weighing on activity.”
It said these included the slowdown in China, “whose spillovers are magnified by its lower reliance on import- and resource-intensive investment, commodity exporters’ continued adjustment to lower revenues; spillovers from persistently weak demand in advanced economies; and domestic strife, political discord, and geopolitical tensions in several countries”.
China, considered one of the key engines of the global economy is seeking a recalibration to make consumer spending a key driver for growth, instead of the massive government investment and cheap exports that have underpinned its decades-long rise.
But the transition is proving painful as growth rates sit at 25-year lows and key indicators continue to come in below par.
China’s outsize influence on the global economy means the worldwide outlook is heavily dependent on what happens there.
The economy expanded 6.9 percent in 2015, its weakest annual rate in a quarter of a century. The IMF said it expected growth of 6.6 percent in 2016 — the same as its forecast in July — slowing to 6.2 percent in 2017.
“China’s adjustment to a slower growth path and the subdued outlook for commodity prices remain potent forces shaping prospects for many of these economies,” the report said.
“Most tangibly, these two large reconfigurations have burdened the operating environment for emerging market and developing economy businesses, many of which are saddled with high debt after the credit boom of 2002–12.”
Global commodity prices have been hammered in recent years by plunging demand from developed nations and overcapacity.
The Fund said the lower prices had boosted India, where growth hit 7.6 percent last year and a number of structural reforms had been implemented.
However, it warned, further measures were needed to boost jobs, while the central bank should continue with its own reform agenda. India’s central bank cut interest rates to a six-year low of 6.25 percent on Tuesday.
The IMF tipped growth of 7.6 percent this year and next, up from 7.4 percent projected in July.
The outlook for Brazil, which in August saw President Dilma Rousseff impeached and removed, and Russia, which is struggling with low oil revenues, has also improved, the report said.
South Africa has also taken a hit as falling income from commodity exports mixes with political uncertainty and weak policymaking, the IMF warned.
Outside of the so-called BRICS economies — Brazil, Russia, India, China and South Africa — the IMF’s outlook for sub-Saharan Africa was cut to 1.4 percent this year and 2.9 percent in 2017. That is down from 1.6 percent and 3.3 percent forecast in July.Punch