Are we all hung up on emerging markets now? A slew of US results on Tuesday underlined the resilience of international operations but failed to dispel fears that the slowing domestic economy would weigh on future earnings – DuPont’s bullish outlook with its large overseas sales reassured, while Whirlpool and UPS on projections of domestic disappointment.
Martin Wolf in Wednesday’s FT looks at the IMF’s latest relatively rosy outlook for world growth, and its reliance on the developing world.
Between 2004 and 2008, says the IMF, growth of emerging economies will average 7.8 per cent a year, while high-income countries will average only 2.7 per cent. Never before has world growth been so much higher than that of high-income countries.
Leaving aside issues of PPP (for these figures) versus market exchange rates, the IMF says Wolf expects demand to decouple from weakness in the US.
This comes with health warnings, including a more severe impact of the credit squeeze through links with housing, loss of confidence in the securitised credit markets and the effect ton the health of the banking system.
But, says Wolf, the broad picture is of continued strong growth with downside risks – a happy outcome that can no longer be ensured by developed countries alone:
Emerging markets have now become big players. They will have to accelerate domestic demand, reduce accumulations of currency reserves, allow exchange rate adjustment, open markets and, in short, be “responsible stakeholders”, if the growth dynamic is to be sustained in the years ahead.
For what is now happening is an historic shift in economic weight. How well will the world handle this challenge? In truth, it has gone better than one might have feared even a few years ago. Yet the ability of the international institutions — and particularly of the IMF — to help is limited. Partly because of the iron determination of the Europeans to hold on to their privileged position, the IMF, like the Group of Seven leading high-income countries, is now largely an observer of events. But, thanks to the work displayed in the World Economic Outlook, it is at the very least better informed and so, as a result, are the rest of us.