|IMF says Fed tapering bodes further ill for emerging markets, urges structural reforms
The International Monetary Fund warned the Group of 20 that emerging economies were slowing more than expected and under pressure from US plans to slow its stimulus.
In a report prepared for the two-day summit of the G20 major economies today in St. Petersburg, Russia, the IMF said that recent indicators pointed to stronger growth in several advanced countries, but key emerging economies have slowed, AFP reports.
Since its July report on global developments and risks, the IMF said, growth projections for emerging economies are being revised downward “with risks still to the downside.''
“The impulse to global growth is expected to come mainly from the United States in the near term,'' the report said.
“Overall, concerns about a prolonged period of sluggish global growth [a plausible downside scenario] remain elevated.''
Brazil, China and India were mainly responsible for the loss of some 2.5 percentage points in emerging economy growth since 2010 levels.
Lower commodity prices also have hit the outlook for many commodity exporters.
Tightening global financial conditions, spurred by market conviction that the US Federal Reserve is close to reeling back its stimulus program, have added to the pressure on emerging economies.
Since May, when the Fed began signaling it would taper its US$85 billion a month bond-buying program if the US economy continued to improve broadly, investors have pulled out of emerging economies seeking higher returns in the US and elsewhere.
The outflow of capital has driven emerging-market currencies sharply lower, from Brazil to India and Turkey.
“Emerging economies were hardest hit following Fed 'tapering' remarks,'' the IMF said, adding that external financing pressures remained heightened in Brazil, India, Indonesia, Turkey and South Africa.
Emerging economies' policy responses should be tailored to the specific country and could include “some intervention to smooth current market volatility'' in countries with adequate reserves.
“Fed tapering of asset purchases may trigger exchange rate and financial market overshooting in emerging market economies, while they are trying to cope with rising domestic vulnerabilities and slower growth,'' the report said.
The IMF predicted global growth to strengthen moderately in 2014 from 2013.
The IMF told G20 leaders that reforms were clearly needed.
“Widespread financial, fiscal, and structural impediments need to be addressed to bolster growth and financial stability.''