1.
Page 1 of 2
Economic Commentary
QNB Economics
economics@qnb.com.qa
June 8, 2014
Could the Emerging Market Slowdown Jeopardize
the Global Recovery?
Following the large outflow of global capital last
year, Emerging Markets (EMs) are now starting
to feel the economic pain. EM growth is slowing
sharply, from Brazil to Indonesia, Russia and
South Africa, partly reflecting the tightening of
domestic policies last year to stabilize EM foreign
exchange rates. This slowdown is impacting
global export demand, thus affecting the
recovery in advanced economies as well. Overall,
the EM slowdown could jeopardize the global
recovery, unless advanced economies pick up the
slack.
Since the announcement by the US Federal
Reserve (Fed) in May 2013 of its intention to
taper its asset-­‐purchasing program—the so-­‐
called Quantitative Easing (QE)—global capital
flew out of EMs, forcing EM central banks to
tighten domestic policies to stabilize their
exchange rates (see our related Economic
Commentary dated April 27, 2014). While the
tightening has been relatively successful in
reversing the capital outflow in some countries,
the impact on EM growth is just starting to be
felt.
The last few weeks have witnessed a series of
disappointing EM data releases. Brazil’s Q1 real
GDP growth rate slowed to 0.7% (quarter-­‐on-­‐
quarter annualized), compared with 2.3% for
2013 as a whole. Indonesia’s Q1 growth rate
declined to 3.5% (5.8% in 2013). South Africa’s
Q1 GDP contracted 0.6%, compared with growth
of 1.9% in 2013. The most dramatic fall was in
Thailand with an annualized Q1 contraction of
8.2%, partly reflecting the current political
instability. Against this trend, India saw a jump
in Q1 GDP growth to an annualized 8.2%, partly
due to a record USD5bn spending on elections,
which added an estimated 2 percentage points to
growth in the first quarter.
Growth Rates in Selected EMs
(% Change)
Sources: Bloomberg and national statistical authorities
This generalized slowdown in EM growth is
impacting global trade flows. EMs account for
approximately 40% of all global trade activity
and have been among the largest contributors to
global export growth in recent years. The EM
slowdown is therefore having an impact on
global export growth. According to the World
Trade Organization, the USD value of global
exports grew by a mere 1.7% year-­‐on-­‐year in the
first quarter of 2014, compared with 4.3% in Q4
2013. Most of this slowdown can be attributed to
lower export demand from EMs. In turn, lower
global export demand has contributed to lower
Q1 real GDP growth in both the US (-­‐1.0%) and
the Euro area (0.2%).
Is the EM slowdown therefore jeopardizing the
global recovery? The short answer is it could,
unless advanced economies pick up the slack. So
far, the EM slowdown has not yet resulted in a
contraction in global trade as witnessed during
the Great Recession of 2008-­‐09. If advanced
economies continue to recover and pick up the
slack of the EM slowdown, the global economy
should be able to maintain its growth
momentum.
South
Africa
Turkey
Brazil
Russia
Indonesia
India
Thailand
-­‐12%
-­‐9%
-­‐6%
-­‐3%
0%
3%
6%
9%
12%
2008 2009 2010 2011 2012 2013 2014Q1

2.
Page 2 of 2
Economic Commentary
QNB Economics
economics@qnb.com.qa
June 8, 2014
The performance of advanced economies
critically depends on the normalization of US
monetary policy. The Fed seems to be set on
completing QE tapering in late 2014. If QE
tapering results in weaker US growth, long-­‐term
US interest rates are likely to remain below 3%,
thus pushing global capital out in search for
higher returns in EMs. The result could be an
uneven global recovery in favor of EMs, just like
in the period 2010-­‐13. On the other hand, if the
US economy recovers as expected, long-­‐term US
interest rates are likely to go up, making EMs less
attractive. In turn, this would imply a further EM
slowdown, while advanced economies recover.
This may make for a more balanced and
sustainable global recovery as advanced
economies account for a larger portion of global
trade.
Overall, the global economy seems once again at
a crossroads. With the EM slowdown, global
trade is being affected, which in turn is having a
negative impact on growth in advanced
economies. If the normalization of US monetary
policy results in a gradual recovery in the US,
advanced economies should be able to make up
the slack at the expense of a further EM
slowdown. The latest growth data from the US,
however, suggest a rather different scenario,
which may indeed jeopardize the global
recovery.
Contacts
Joannes Mongardini
Head of Economics
Tel. (+974) 4453-­‐4412
Rory Fyfe
Senior Economist
Tel. (+974) 4453-­‐4643
Ehsan Khoman
Economist
Tel. (+974) 4453-­‐4423
Hamda Al-­‐Thani
Economist
Tel. (+974) 4453-­‐4646
Ziad Daoud
Economist
Tel. (+974) 4453-­‐4642
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