Big emerging economies like China, India, Brazil and a few others underpinned the global economy during the worst phase of the recent crisis and spearheaded growth in the recovery phase. Their role in picking up the slack has been highlighted by global financial institutions, including the IMF and the World Bank. Well into the recovery, albeit an anaemic one, they continue to be ahead of the developed countries in terms of economic growth. However, there is one big difference. A decade or so of frenetic growth has ended, probably for good. Investors who bet heavily that extraordinary returns from emerging markets were the new normal are having second thoughts. Recent economic news reports are hardly flattering. China posted its lowest growth in three years. India’s recent GDP growth has been the lowest since 2004. Brazil’s economy has virtually stalled. The IMF in a recent publication has cut the growth forecast for three of the four BRIC countries for the current year. Pointing out that the growth slowdown in the emerging markets has been a bit more severe than expected, the IMF revised the forecast for China down from 8.2 to 8 per cent, for India from 6.9 to 6.1 per cent and for Brazil from 3.0 to 2.5 per cent. Low exports and low investment are the proximate causes for the deceleration, although quite obviously there is variation across countries.
The IMF, among others, expects the big emerging economies to have a soft landing, but at lower growth rates. The challenges from now on will be varied and different for each of them. Can India expand at 8 per cent levels while simultaneously taking care of its high fiscal and current account deficits and persistently high inflation? China is planning a shift away from investment-driven growth to a more sustainable one driven by consumption, even if that means a lower GDP growth rate. Brazil, an important commodities exporter, has welcomed the recent depreciation of its currency, the real, quite in contrast to the reactions that have greeted the rupee’s recent fall. Russia will have to reduce its overdependence on oil and gas. While no uniform prescriptions for either the emerging economies or for that matter the developed ones are possible, it is time again to re-emphasise the mutual interdependence of all countries. The festering euro crisis is a global problem and a fair resolution will benefit even countries outside the eurozone. A stronger U.S. economy will stimulate world trade. The financial markets have already discredited the “decoupling” theory, which held that emerging markets can grow independent of negative influences from the West.