Emerging Markets Tackle Risks, Cement Global Power

Rise in emerging market economic power to extend beyond crisis

New risks, possible overheating threat to leadership if not addressed

Structural reforms will help rebalancing and more productive investments

Their “extraordinary” performance stands in stark contrast to the high debt and sluggish growth in advanced countries, said moderator Lin Xue Ling of Channel NewsAsia, opening the session. But possible overheating is now a worry for emerging economies, she added.

The IMF’s latest global forecasts project emerging economies will grow by 6½ percent this year (and an even higher 8 percent in emerging Asia) compared with expected global growth of 4½ percent, said panelist and IMF Deputy Managing Director Naoyuki Shinohara.

The April 13 event—“Emerging Markets: Leading the Recovery, but What Next?”—was one of two major seminars held during the IMF-World Bank Spring Meetings.

Growth decoupling

The divergent growth prospects of emerging and advanced economies are here to stay, according to Domenico Lombardi, senior fellow at the Brookings Institution.

Panelists regarded this “decoupling” of growth as a good thing—it “saved the day during the financial crisis,” said Moisés Naím, senior associate at the Carnegie Endowment for International Peace.

This does not discount the need for economic rebalancing, Lombardi said. Still weak growth, and the need to reduce government debts and deficits in advanced economies, means that emerging economies will have to rely more on domestic sources of growth.

Nor does the decoupling of growth reflect cyclical differences between emerging and advanced economies, argued Lombardi. Increasing south-south flows—that is, increased trade and financial flows among emerging and developing countries—will help make up for the falloff in demand from advanced economies.

Emerging markets demonstrated the durability of their economic success in the face of recent shocks—the Japanese earthquake and tsunami, and unrest in the Middle East—agreed Joyce Chang, Managing Director and Head of Emerging Markets and Global Credit Research at JPMorgan, and Sebastian Mallaby, Senior Fellow at the Council on Foreign Relations.

In the face of these events, money had flowed into emerging markets, contrary to what we might have expected. There had been a flight to quality, Mallaby said.

So “can we now all go back home and sleep well because we know emerging markets are … going to pull all the rest of the world out of the trouble...