Growth in emerging markets to fall to decade low
IMF cuts forecasts in almost every region as it predicts second-weakest year since 2002
Emerging market economic growth will fall to its weakest level since the height of the global financial crisis this year, according to the IMF, in a big cut to its forecasts.
Full year emerging market-wide growth is projected to come in at 4.1 per cent, a decade low and the second-weakest figure since the dotcom bust of 2002, rather than the 4.4 per cent the IMF pencilled in as recently as April.
The gloomy forecast is just the latest in a series of swingeing downgrades by the Washington-based body. In October last year it projected emerging market growth of 4.7 per cent in 2019, while in April last year its forecast for the current 12 months was a rosy 5.1 per cent.
They come amid rising concerns about the future of globalised supply chains and weakening productivity growth in the developing world, which are calling into question the logic for investing in emerging economies.
The downward revisions in the IMF’s quarterly World Economic Outlook update are concentrated almost entirely in the developing world. Growth has been revised up a fraction in advanced countries, to 1.9 per cent, but down a notch in the world as a whole, to 3.2 per cent.
With the exception of emerging Europe, growth forecasts have been cut in every region of the developing world, led by a dramatic slump in Latin America and the Caribbean, where output is now expected to expand by just 0.6 per cent this year, less than half the 1.4 per cent pace projected three months ago and barely a fifth of the 2.8 per cent rate forecast in April 2018.
The IMF cited “uncertainty” about pension and other structural reforms in Brazil, “policy uncertainty, weakening confidence and rising borrowing costs” in Mexico and economic contraction in Argentina for its deepening pessimism.
Likewise the region encompassing the Middle East, north Africa, Afghanistan and Pakistan is expecting to chalk up lacklustre growth of just 1 per cent, rather than 1.5 per cent, a far cry from the 3.7 per cent envisaged in April last year.
The prime driver is Iran, which is projected to contract at an even faster pace than the 6 per cent decline forecast in April, amid a tightening of US sanctions.
Forecasts have also been shaved for the Commonwealth of Independent States, in the wake of Russia’s economy contracting 0.4 per cent in the first quarter, and sub-Saharan Africa, where South Africa suffered a disastrous annualised 3.2 per cent quarter-on-quarter contraction in the March quarter as strike activity and blackouts hit the mining sector and agricultural output also fell.
Emerging Asia, the powerhouse of the developing world, is likely to hold up better, however, despite China being engulfed in a deepening trade war with the US.
Even though the IMF has trimmed its growth forecasts for China, India and south-east Asia, emerging Asia as a whole is still seen expanding by 6.2 per cent this year, just a tenth of a point below its April projection.