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NEW YORK. – Emerging markets face increasing risks, the IMF warned yesterday as it trimmed its outlook for the countries which have been the main driver of global growth in recent years.
Emerging and developing nations, which includes rising economic powerhouses China, India and Brazil, should register 4,9 percent growth in 2014 the International Monetary Fund said.
That meant it cut its January forecast by 0,2 percentage points.
“These economies are adjusting to a more difficult external financial environment in which international investors are more sensitive to policy weakness and vulnerabilities given prospects for better growth and monetary policy normalisation in some advanced economies,” the IMF said in its latest World Economic Outlook (WEO) report.
Emerging markets benefited considerably from the US Federal Reserve’s monetary stimulus programme as many investors chose to seek higher returns available in developing nations.
When the Fed signalled in May 2013 plans to wind down the stimulus programme a number of emerging economies and currencies were hit by a whiplash as investors pulled back funds on the prospect of higher returns in advanced markets.
The IMF’s findings coincided with an assessment by the Organisation for Economic Co-operation and Development that big emerging economies are showing signs of slowing down, with the exception of China where the outlook is for stable activity.
The IMF said emerging markets were being hit by a tightening of financial conditions since its previous forecasts in October, while they remained stable in advanced countries.
Emerging markets are likely to continue to feel the effects of the switch in sentiment, which often revealed underlying problems in developing economies that had been masked by the easy money policies.
The WEO report’s baseline projections assume that capital inflows to emerging market economies will remain lower in 2014 than they were in 2013, before recovering modestly in 2015. It trimmed its 2015 growth forecast for emerging markets by 0,1 percentage points to 5,3 percent. – AFP.
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