Working Paper: CEPR ID: DP11065
Authors: Tatiana Didier; Ayhan Kose; Franziska Ohsorge; Lei Sandy Ye
Abstract: 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.
Keywords: emerging markets; fiscal policy; growth slowdown; monetary policy; policy space; structural reforms
JEL Codes: E60; F43; F6; O4; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| External Factors (F29) | Slowdown in EM Growth (F69) |
| Domestic Factors (F52) | Slowdown in EM Growth (F69) |
| Weak World Trade (F19) | Slowdown in EM Growth (F69) |
| Low Commodity Prices (Q02) | Slowdown in EM Growth (F69) |
| Tightening Financial Conditions (E44) | Slowdown in EM Growth (F69) |
| Decline in Productivity Growth (O49) | Slowdown in EM Growth (F69) |
| Policy Uncertainty (D89) | Slowdown in EM Growth (F69) |
| Erosion of Policy Buffers (E65) | Slowdown in EM Growth (F69) |
| Limited Policy Space (G52) | Need for Structural Reforms (E69) |
| Cyclical Components (E32) | Slowdown in EM Growth (F69) |
| Structural Components (Y20) | Slowdown in EM Growth (F69) |