Emerging economies at risk if rich nations should slow: IMF

Thu Sep 27, 2012 12:42pm EDT
 
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By Lesley Wroughton

WASHINGTON (Reuters) - The International Monetary Fund cautioned emerging market countries on Thursday that their impressive growth could be at risk if advanced economies should slow, urging policymakers to ensure their economies were ready to respond.

The IMF said better policymaking over more than a decade in emerging and developing countries has made these economies stronger and better equipped to handle economic shocks, but emphasized that they were not immune to shocks from within or from abroad.

In initial chapters of its World Economic Outlook released on Thursday, the IMF warned that a surge in capital flows, rapid credit growth and high commodity prices, which have helped drive strong growth in emerging economies, were also prone to sudden stops.

"There is no guarantee that the relative calm emerging economies have enjoyed over the past two years will continue," IMF economist Abdul Abiad told a news conference. "There is a significant risk that advanced economies could experience another downturn, and in such an event, emerging economies and developing economies will end up 'recoupling' with advanced economies."

Signs that slowing global demand is cooling growth in most emerging economies are already apparent, with manufacturing output falling and business confidence waning. In July, the IMF shaved its growth forecasts for three of the four BRIC countries - Brazil, China and India. Only Russia avoided a cut in its forecast.

China's central bank has already cut interest rates twice in June and July to deal with its slowing economies, but has so far held off on more aggressive easing measures despite further signs of easing demand at home and abroad.

FOCUS ON FISCAL SAFETY NETS

The IMF report, which looks at economic expansions and downturns in more than 100 emerging and developing economies over the past 60 years, found that emerging economies were spending more time in expansion mode. Downturns and recoveries have become shallower and shorter, the fund found.   Continued...