Emerging Markets in Transition: Growth Prospects and Challenges

After decades of stalled and even regressed convergence, emerging markets (EMs) started closing the income gap with advanced economies in the last decade. This "return to convergence" was facilitated by supportive external conditions, improved policy frameworks, and growth-enhancing reform...

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Bibliographic Details
Published in:Policy File 2014
Main Authors: Cubeddu, Luis, Culiuc, Alex, Fayad, Ghada, Gao, Yuan, Kochhar, Kalpana, Kyobe, Annette, Oner, Ceyda, Perrelli, Roberto, Sanya, Sarah, Tsounta, Evridiki, Zhang, Zhongxia
Format: Report
Language:English
Subjects:
Developing countries
Economic policy
Globalization
International Monetary Fund
LDCs
Online Access:Request full text
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Summary:After decades of stalled and even regressed convergence, emerging markets (EMs) started closing the income gap with advanced economies in the last decade. This "return to convergence" was facilitated by supportive external conditions, improved policy frameworks, and growth-enhancing reforms of the previous decade in many EMs. It was also a widespread phenomenon, with nearly half of all EMs growing at higher rates in the 2000s compared to the 1990s. However, EMs are now entering a period of slower growth. After swiftly rebounding from the global financial crisis, their growth rates in the last few years have fallen not only below the post-crisis peak of 2010-11, but also below the levels seen in the decade before the crisis. The external conditions that supported their convergence over the last decadenamely, buoyant global trade, high commodity prices, and easy financing conditionsare not expected to prevail in the coming years. And more recently some large EMs have come under market pressure as their growth outlook relative to advanced economies started to look less rosy, advanced economies began to normalize their monetary policy, and external financial conditions started to tighten. This Staff Discussion Note delves deeper into the factors behind EMs' strong growth performance over the last decade and the more recent slowdown to shed further light on their growth prospects.