home > by publication type > daily analysis > Emerging Markets, Converging Fears
Email
| Authors: | Lee Hudson Teslik |
|---|
Economic growth in Vietnam and other emerging markets is slowing due to the global financial crisis. (AP/Richard Vogel)
As the current financial storm spread from a U.S. housing market problem to a credit crisis to a full-blown economic hurricane, its impact on emerging markets was initially confined to share prices. Equity indices in the so-called BRIC nations (Brazil, Russia, India, and China), which experienced a heady run-up from 2005 through 2007, all suffered losses far greater than their counterparts in western Europe and the United States. Despite these losses, many analysts assumed until recently that the underlying economic growth in these countries would continue. New economic data is forcing them to reconsider this notion, however, and raising the question of what a speed bump for emerging market growth would mean both economically and politically.
China brought these fears into focus in mid-October when it announced third-quarter economic growth of 9 percent (FT). Such growth may look strong compared with the prospect of shrinking economies in the United States or Europe, but this was China's lowest growth rate in five years and a dramatic comedown for one of the world's hottest economies. The new global economic outlook report by the International Monetary Fund (IMF) tells the same story, but more broadly. The report projects growth in developing Asia as a whole to fall from 9.3 percent in 2007 to 7.1 percent in 2009, and similar trends across most of the world's major emerging markets. Specifically, it estimates:
Will these declines prove a momentary blip in a decades-long growth trajectory, or will they spiral into something more worrisome? The answer, many analysts believe, will depend on how low growth falls, and in which countries. China, for instance, is home to over 150 million people living below the poverty line, and is sitting on several potential political land mines-unrest in Tibet and Xinjiang Province among them. The government has attempted to keep a tight rein on political dissidents, but CFR's Brian P. Klein writes in the Far Eastern Economic Review that unrest could spike if the country's growth rate falls below 8 percent. Should China's geopolitical situation break down, the economic ramifications would likely be felt broadly throughout the world's economy.
India also faced serious problems with poverty, even in happier economic times. Now analysts wonder whether unrest could broaden in an economic downturn. Another major challenge for New Delhi is neighboring Pakistan, which faces some of the most serious economic tests of any country in the region. Should Pakistan's political situation devolve, analysts anticipate damaging consequences for India. Russia, meanwhile, has been tested by falling oil prices-the Wall Street Journal reports that the steep recent decline could be problematic for the Kremlin, given the major role economic revitalization has played in bolstering Vladimir Putin's popularity. Declining oil and commodity prices have also tested the economic might of several of Latin America's major players, and economic uncertainty in countries like Bolivia (CSMonitor) and Argentina (Reuters) threatens to destabilize the region more broadly.
Experts say that emerging markets could well determine how far total global economic growth will fall. The Economist, in a recent cover story on the topic, says how emerging markets fare "will determine whether the world economy faces a mild recession or something nastier." Yet the IMF predicts that despite emerging economies' "cooling momentum," they could still act as a source of global economic resilience. Taking this into consideration, the fund estimates that global growth rates will rebound modestly by the second half of 2009. Political unrest could obstruct that bounce, however, so analysts in emerging and advanced economies alike will be keeping a close eye on China and its BRIC counterparts as the current turmoil unfolds.
Weigh in on this issue by emailing CFR.org.
To order Task Force reports, Council Special Reports, and Critical Policy Choices, please call, fax, or order online from our distributor, the Brookings Institution Press: phone +1.800.537.5487, fax +1.410.516.6998.
For information on other reports that are not for sale, or for general publications information, please call +1.212.434.9516 or email publications@cfr.org.
Start-Up Nation addresses the trillion-dollar question: How is it that Israel—a country of 7.1 million, only sixty years old, surrounded by enemies— produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the UK? With the insights of geopolitical experts and investors, the authors examine this nation’s adversity-driven culture to answer this question and offer prescriptions for a global economy on the rebound.
In Forces of Fortune, Vali Nasr presents a paradigm-changing revelation that will transform the understanding of the Muslim world at large. He reveals that there is a vital but unseen rising force in the Islamic world—a new business-minded middle class—that is building a vibrant new Muslim world economy and that holds the key to winning the cold war against Iran and extremists.
In Cuba: What Everyone Needs to Know, Julia E. Sweig presents a remarkably accessible portrait of Cuba's unique place on the world stage over the past fifty years, including its internal politics, its often fraught relationship with the United States, and its shifting relationship with the global community.
Complete list of CFR Books
The report of this bipartisan Task Force of distinguished leaders and experts represents a strong consensus on the importance of repairing America's immigration policy. It makes the case that maintaining America's political and economic leadership depends on attracting talented and hard-working immigrants, and on securing the country's borders in a smart, effective, and humane way.
This report finds that nuclear weapons will remain a fundamental element of U.S. national security in the near term, and makes recommendations on how to ensure the safety, security, and reliability of the U.S. deterrent nuclear force, prevent nuclear terrorism, and strengthen the nuclear nonproliferation regime.
About Independent Task Forces at CFR
Complete list of Task Force reports
Identifying international threats and acting on them may be the most difficult job for U.S. policymakers. This report
provides an actionable road map for managing international threats before they erupt into crises and makes a strong case that preventive action is not a luxury but a necessity.
For more than a decade, the United States has mostly watched from the sidelines as Asian countries organize themselves into an alphabet soup of new multilateral groups. In this report, the authors review the relationship between pan-Asian and trans-Pacific institutions and suggest policy guidelines for a new U.S. approach to this new Asian landscape.
Complete list of Council Special Reports
To request permission to reprint or reuse CFR material, please fill out this permissions request form (PDF), referring to the instructions on page 1.
Copyright 2009 by the Council on Foreign Relations. All Rights Reserved.