DP11065 Slowdown in Emerging Markets: Rough Patch or Prolonged Weakness?

Author(s): Tatiana Didier, Ayhan Kose, Franziska Ohnsorge, Lei Sandy Ye
Publication Date: January 2016
Keyword(s): emerging markets, fiscal policy, growth slowdown, monetary policy, policy space, structural reforms
JEL(s): E60, F43, F6, O4, O43
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11065

Emerging markets (EM) face their fifth consecutive year of slowing growth and a possibly longer period of sluggish performance than previously thought. This paper presents a comprehensive analysis of the nature of and the appropriate policy responses to the growth slowdown in EM. It reports three main results. First, the slowdown is synchronous and protracted, affecting a sizable number of EM, especially large ones. Second, it has been driven by both external factors, including weak world trade, low commodity prices, and tightening financial conditions; and domestic factors, including slowdown in productivity growth, bouts of policy uncertainty, and an erosion of policy buffers. Both structural and cyclical factors have contributed to the slowdown. Third, the room for accommodative cyclical fiscal and monetary policies is limited in many EM, lending urgency to putting in place structural reforms to upgrade governance structures, improve business environments, raise human and physical capital, and manage demographic pressures.