The emerging and developing markets, which account for more than 75 per cent of global growth in output and consumption, are facing less supportive external environment than they have grown accustomed to in recent decades, the IMF warned today. In its latest issue of World Economic Outlook report, the IMF noted that emerging market and developing economies have become increasingly important in the global economy in recent years, accounting for over 75 per cent of growth in output and consumption, almost double the share of just two decades ago.
“The external environment has been important for this transformation,” it said. It said that these economies have integrated into the global economy, terms of trade, external demand, and, in particular, external financial conditions have become increasingly influential determinants of their medium-term growth.
“With potentially persistent structural shifts occurring in the global economy, emerging market and developing economies may face a less supportive external environment going forward than they experienced for long stretches of the post-2000 period,” the IMF said.
“The still-considerable income gaps in these economies vis-à-vis those in advanced economies suggest further room for catch-up, favouring their prospects of maintaining relatively strong potential growth over the medium term,” it noted.
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However, steady catch-up growth has not been automatic in the past, it said, noting that emerging market and developing economy growth has exhibited episodes of accelerations and reversals over time.
“Nevertheless, these economies can still get the most out of a weaker growth impulse from external conditions by strengthening their institutional frameworks, protecting trade integration, permitting exchange rate flexibility, and containing vulnerabilities arising from high current account deficits and external borrowing, as well as large public debt,” IMF said.
The IMF said despite emerging market and developing economies’ increasing overall importance in the global economy, particularly in the 2000s, income levels of individual countries within the group are still relatively low vis-à-vis those of advanced economies.