IMF Sees Acute Market Pressure for Some Emerging Economies

Developed economies are turning into global growth engines as some of their emerging-market counterparts decelerate amid “acute” market pressures, the International Monetary Fund said.

“Global growth remains subdued but its underlying dynamics are changing,” the IMF said today in a report for leaders of the Group of 20 nations meeting this week in St. Petersburg, Russia. “Momentum is projected to come mainly from advanced economies, where output is expected to accelerate.”

Emerging markets, which helped pull the world out of a recession after the global financial crisis, now face an exodus of cash and sliding currencies in anticipation of the Federal Reserve’s eventual tapering of its $85 billion in monthly bond purchases. Expansion in those countries is 2.5 percentage points below 2010 levels, with Brazil, China and India accounting for the slowdown, according to the IMF.

“Emerging economies were hardest hit following Fed ‘tapering’ remarks and external financing pressures remain heightened in some economies,” IMF economists wrote, citing Brazil, India, Indonesia, Turkey and South Africa. “More recently market pressures have been more concentrated on particular economies with important financial or macroeconomic vulnerabilities.”

Advanced Economies

In contrast, advanced economies are showing encouraging signs, with private demand in the U.S. strengthening, stimulus showing results in Japan and the euro region emerging from recession, according to the report.

The IMF assessment is an update of a July report, in which it cut its forecast for the world economy this year for a fifth consecutive time.

In emerging economies, “policy makers should allow exchange rates to respond to changing fundamentals but may need to guard against risks of disorderly adjustment, including through intervention to smooth excessive volatility,” the IMF said in today’s report, while adding responses need to be country-specific.

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