Growth risks to emerging economies increasing

BASEL – Emerging economies risk taking a harder hit than so far anticipated from the slowdown in major industrial countries, the Bank for International Settlements said in its annual report.

Emerging markets in Asia and Latin America have been showing resilience and at 6,7 per cent the consensus growth forecast for emerging countries for 2008 was not much below the average of 2003-2006 boom, the BIS said in the report published yesterday. “Nevertheless, the potential knock-on effects of financial market turmoil in the major centres increased the risk of a slowdown in (emerging markets),” said the BIS, which acts as a central bank to its member central banks.”Exports of (emerging economies) could be significantly affected if the US economic slowdown deepens,” the BIS said.In addition, soaring food and oil prices has driven inflation above target in many countries, making a case for interest rate rises when slowing growth would normally prompt cuts.”As in advanced countries, these conflicting forces have created a major dilemma for monetary policy,” the BIS said.”Efforts to resist currency appreciation have introduced additional complications, having been associated with a sharp increase in foreign reserves and in credit growth in a number of (emerging economies),” the BIS said.Policy makers at regular bi-monthly meetings at the BIS in Basel have praised the resilience emerging economies have shown through the global financial storm that broke last August.RESILIENT, BUT …In its report, the BIS said many emerging countries looked less dependent on demand from the United States – making them more resilient to a slowdown there compared with the last downturn in 2001 after the internet bubble burst.In addition, Asian and Latin American countries have successfully boosted private consumption and investment spending there is now increasingly contributing to growth, the BIS said.But the BIS warned that optimistic forecasts for the emerging world might ignore serious risks.Especially in Asia, fading demand in the United States – still a very important export market – could have a domino effect.”There is a risk that the growth in China’s imports overall could slow down sharply should the US economy weaken further, with adverse consequences for its trading partners,” the BIS said, adding US demand was slowing in key sectors.”For example, the growth in imports of certain IT products that are important for a number of East Asian economies – e.g.Korea, Malaysia and Singapore – has declined,” the BIS said.Nampa-Reuters”Nevertheless, the potential knock-on effects of financial market turmoil in the major centres increased the risk of a slowdown in (emerging markets),” said the BIS, which acts as a central bank to its member central banks.”Exports of (emerging economies) could be significantly affected if the US economic slowdown deepens,” the BIS said.In addition, soaring food and oil prices has driven inflation above target in many countries, making a case for interest rate rises when slowing growth would normally prompt cuts.”As in advanced countries, these conflicting forces have created a major dilemma for monetary policy,” the BIS said.”Efforts to resist currency appreciation have introduced additional complications, having been associated with a sharp increase in foreign reserves and in credit growth in a number of (emerging economies),” the BIS said.Policy makers at regular bi-monthly meetings at the BIS in Basel have praised the resilience emerging economies have shown through the global financial storm that broke last August.RESILIENT, BUT …In its report, the BIS said many emerging countries looked less dependent on demand from the United States – making them more resilient to a slowdown there compared with the last downturn in 2001 after the internet bubble burst.In addition, Asian and Latin American countries have successfully boosted private consumption and investment spending there is now increasingly contributing to growth, the BIS said.But the BIS warned that optimistic forecasts for the emerging world might ignore serious risks.Especially in Asia, fading demand in the United States – still a very important export market – could have a domino effect.”There is a risk that the growth in China’s imports overall could slow down sharply should the US economy weaken further, with adverse consequences for its trading partners,” the BIS said, adding US demand was slowing in key sectors.”For example, the growth in imports of certain IT products that are important for a number of East Asian economies – e.g.Korea, Malaysia and Singapore – has declined,” the BIS said.Nampa-Reuters