THE developing world is catching up with advanced economies, but no longer as quickly as they would like. That has spooked investors. The slump in commodity prices and fears of an increase in interest rates in America led to 2015 being the first year since 1988 in which there will be a net capital flow out of emerging markets.
The International Monetary Fund’s new World Economic Outlook, published yesterday, offers little comfort. Some of the IMF’s headline projections seem relatively chirpy. Despite Brazil being downgraded into negative territory, the BRICS economies are still growing at a decent speed of 4.8% this year, projected to nearly hit 6.0% in 2020. Compared to Citi’s warning last month that a global recession led by an emerging-market slowdown is on the way, the IMF are positively bullish. The IMF expects China to steam ahead at 6.3% growth, and India at a whopping 7.5% in 2016.
But the IMF has been accused of over-optimism in the past, and they themselves admit that there are some big risks. One they highlight is the risk of a slow-down in emerging markets, coupled with investor panic. The IMF's charts (see below) suggest what might happen in this scenario. A four percentage-point drop in investment would slash growth in the BRICS economies (Brazil, Russia, India, China, and South Africa) from 6%...Continue reading
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