The slowdown in emerging market economies and its implications for the global economy

Emerging market economies (EMEs) have been a significant driver of global growth and euro area external demand in the 21st century. However, since 2010 growth in EMEs has been on a downward trend. Some of that moderation has been driven by structural factors such as diminishing capital accumulation and productivity gains and waning global trade integration.

Other headwinds include the sluggish recoveries seen in advanced economies, which have dampened external demand, sharp declines in commodity prices, which have particularly affected growth in commodity-exporting economies, and the gradual tightening of global financing conditions since 2013.

Moreover, following a period in which policies were highly accommodative and private sector debt increased, policy buffers have been eroded and macroeconomic vulnerabilities have increased.

The slowdown in EMEs has already dampened global growth and had an adverse, albeit moderate, impact on euro area exports. However, this has been partially offset by the boost to real disposable incomes resulting from declines in commodity prices. Looking ahead, risks to the outlook for EMEs remain on the downside. A further broad-based and pronounced slowdown in EMEs could have a sizeable adverse impact on the outlook for the global economy.

• Primary Source

ECB: Publications: Economic Bulletin https://www.ecb.europa.eu/pub/economic-bulletin/html/index.en.html

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