Emerging economies are set to slow this year as the U.S. Federal Reserve begins raising interest rates and there’s a rising protectionist rhetoric in advanced economies , the International Monetary Fund warned on Monday.
While emerging and developing markets have benefited from rising commodity prices and capital inflows in the post-2000 period, the recovery from the North Atlantic financial crisis and China’s attempts to re-balance its economy have reduced growth among commodity exporters. Now, rising protectionist rhetoric and the expected tightening of financial conditions pose new threats to emerging markets, the IMF noted in its World Economic Outlook report.
“Growth across emerging market and developing economies in recent years once again displays heterogeneity – a mix of tapering, standstills, reversals and continued strength in some cases. This change has taken place against a backdrop of fading external tailwinds, including waning potential growth in advanced economies, slowdown and rebalancing in China, and a shift in the commodity cycle that has affected commodity exporters,” the Fund said in the report.
“Together with a risk of protectionism in advanced economies and tighter financial conditions as U.S. monetary policy normalizes, these changes make for a more challenging environment for emerging market and developing economies going forward,” the report also said.