EM Challenges Here to Stay
World Economy

EM Challenges Here to Stay

The weakness of emerging economies could prove lasting as deep-seated structural problems rather than fleeting troubles are the root cause, posing a risk to growth even in advanced economies, the European Central Bank said on Tuesday.
ECB President Mario Draghi has repeatedly cited subdued growth in emerging market as a drag on the eurozone recovery and one of the reasons underpinning its ultra-easy policies, Reuters reported.
Elaborating on this point in a regular economic bulletin, the ECB said potential growth among some key emerging economies has weakened, raising the risk of a “sizable” negative impact on global growth.
It cited waning productivity growth, weak investments, rising external debt, tighter financing conditions and deteriorating demographics as some of the reason behind the fading momentum.
Key emerging economies have been under strain this year with China’s slowdown and rebalancing setting off waves of turbulence on financial markets earlier this year.
Although emerging markets still generate 70% of global growth, their growth rate declined for the fifth straight year last year with many key economies likely weighing on growth both in 2016 and 2017, the IMF said earlier.
“Some of these challenges are unlikely to be overcome quickly,” the ECB said. “The impact of weak investment, infrastructure bottlenecks and capacity constraints could be stronger than expected.”
Bumpy Path
“The rebalancing process that is under way is necessary to ensure sustainable growth over the medium term, but the transition path is likely to be bumpy and risks will tend to be on the downside,” the ECB added.
Potential growth has been declining for years and some indicators suggest that emerging markets were already overheating during their boom years, as suggested by surging private debt ratios.
Risings external debt is a particular concern as countries increasingly rely on foreign currency, especially dollar-based financing, raising stability risks and blunting the positive impact of currency depreciation, a natural defense against economic turbulence, it concluded.
Financing conditions for emerging markets have also tightened with capital outflows picking up toward the end of last year, pushing up bond yields, widening credit spreads and weighing down on equities.
Investment growth is also falling and several major emerging economies are running up against demographic problems, facing a dwindling or stagnating workforce, putting downward pressure on growth.

Short URL : http://goo.gl/rQHmuI
  1. http://goo.gl/Bwfuin
  • http://goo.gl/mLSK1D
  • http://goo.gl/ITos68
  • http://goo.gl/d1zflV
  • http://goo.gl/q1vYge

You can also read ...

Members discuss policies, regulation and flexibility to  help improve infrastructure.
Experts from APEC member economies spoke about the need to...
South Korea Business Groups’ Investment Rises 28%
South Korea’s top 30 conglomerates increased their investment...
China Eyes SE Asia Investments
Companies from the world’s second-biggest economy are...
Romania leads the pack in economic growth. The picture shows tires being inspected during production  at the Continental plant in Timisoara.
Economies in most of the European Union’s eastern wing...
Project awards in Bahrain plunged 84%.
Contracts awarded to build economic projects in the Persian...
Infosys is Asia’s No.2 software services developer.
Infosys Ltd. approved a 130 billion rupees ($2 billion) share...
Australia Economy Grows  With Strong Jobs Report
The strength of the Australian economy has been impressive of...
India’s Finished Steel Exports Surge 64%
Finished steel export jumped by 64.2% to 0.770 million ton in...