The ICAS Lectures
Emerging No More?
Mauro F. Guillén
ICAS Spring Symposium
May 22, 2012 Tuesday 1:00 PM - 4:30 PM
Rayburn Office Building Room B318
United States House of Repreesentatives
Capitol Hill, Washington, DC 20515
Institute for Corean-American Studies, Inc.
965 Clover Court, Blue Bell, PA 19422
Biographic sketch & Links: Mauro F. Guillén
Emerging No More?
Mauro F. Guillén
The Wharton School
For almost fifteen years, emerging economies have managed to grow at very high rates,
even during times of turmoil and distress. They have weathered financial storms rather
successfully, bouncing back much faster than developed economies. Since the
beginning of the crisis, emerging economies have generated three quarters of total
growth in the global economy. Based on this spectacular performance, we have come to
assume that the emerging economies will continue growing at a fast pace for many
years to come, and that their expanding domestic markets would one day become
growth engines for the entire global economy.
Recent trends seem to belie such a rosy picture. We are witnessing an economic
deceleration around the emerging world, a moderation of growth rates to levels well
below those needed to continue lifting people out of poverty, creating a broadly-based
middle class of consumers, and providing impetus to the rest of the global economy as a
whole. China's double-digit growth rates are a thing of the past. Russia and India are
also seeing their economies expand at a much slower pace. Brazil's period of rapid
growth seems to have come to an end. Overall, the IMF estimates that emerging and
developing economies grew at a rate of 6.2 percent during 2011, down from 7.5 in
2010. The projection for 2012 is a further reduction to 5.7 percent.
Much of the reduction in growth is due to the economic problems in Europe and the
United States, which are the emerging world's most important markets for
manufactured goods, commodities, and energy. Global trade grew by 12.9 percent in
2010, but only by 5.8 in 2011. The projection for 2012 is a paltry 4.0 percent, with
imports by developed economies growing by as little as 1.8 percent. Although many of
the emerging economies now have major domestic consumption markets, it seems as if
they are not ready to compensate for the reduction in export-led growth.
The increasingly dire situation of European banks is also a key factor because the play
an important role in trade and project finance. The IMF has estimated that its impact on
Australia, New Zealand, Hong Kong, South Korea, and Taiwan is sizable. European
banks often orchestrate complex financing deals for infrastructure projects for which it
is hard to find alternatives quickly.
The economic slowdown in emerging economies comes at a bad moment. China and
India still have hundreds of millions of people who would like to overcome poverty and
enjoy the fruits of development. Russia's government has ambitious plans to build
infrastructure to modernize the economy. Brazil needs continued growth to stay on track
with its poverty reduction targets.
The consequences of reduced growth in emerging economies will be first and foremost
felt by commodity producers, given the downward pressure on prices. Suppliers of
capital goods and industrial components such as Taiwan, South Korea, and Taiwan,
which run large trade surpluses with China, will also see their exports dwindle.
The global economy cannot afford further reductions in emerging-market growth. At
the same time, overheating in some emerging economies mitigate against fiscal stimuli
aimed at accelerating growth, especially because they could fuel inflation, which is
already high in India, Brazil and other Latin American countries. In China and many
other emerging economies banks' loan portfolios are still reeling from the excesses of
the credit boom.
Emerging economies with a sound fiscal position and little exposure to volatile cross-
border capital flows could and should compensate for slackening external demand.
Those lacking such strength should think twice about jumping the gun on stimulus.
Let's hope that emerging economies do not make the kinds of fiscal, monetary and
banking mistakes that have unnecessarily deepened and prolonged the economic crisis
in Europe and the United States.
This page last updated June 8, 2012 jdb