By Peter Bergman (MoneyAmped.com)
According to a report that the International Monetary Fund released on Tuesday, the growing influence of domestic shocks in emerging economies within the G20 on the economic growth of developed nations is highlighted in the report.
All Eyes Are on China and Argentina
China and Argentina have become deeply integrated into the global economy through their participation in trade and commodity value chains. As a consequence, they are no longer merely affected by global shocks; rather, they are actively involved in shaping them.
“Since 2000, the International Monetary Fund (IMF) stated in a section of its World Economic Outlook report that the impact of domestic shocks in G20 emerging markets, especially China, has risen and is now similar in magnitude to shocks in advanced economies.” This proclamation was part of the report that was sent out before the upcoming Spring Meetings of the International Monetary Fund and the World Bank Group in Washington, DC.
Shocks emanating from China could explain as much as 10% of the variation in output seen in other developing markets over three years. In developed economies, these unexpected events at home account for as much as 5% of the variance in production. Conversely, shocks from other G20 emerging markets can account for up to 4% of the variation in output in both advanced and emerging economies.
A Strong G20 Economy Directly Benefits All G20 Member Countries
Because of how interdependent economies are, the developed world could be at risk from disturbances in less developed nations. Still, it could also stand to gain from more robust economies in less developed countries.
The number of spillovers has nearly tripled since the beginning of the 2000s, with China leading the way. Furthermore, the degree of spillover risks originating from Brazil, India, and Mexico has slightly risen.
China must overcome significant obstacles to overcome its ongoing economic difficulties. The burden of substantial local government debt, which is limiting investment in infrastructure, has hampered the country’s progress. Additionally, over the past four years, the real estate market has been experiencing a consistent downward trend. Additionally, the sentiment of consumers and investors is experiencing significant difficulties.
According to the International Monetary Fund (IMF), the shift of the Russian economy towards Asia is anticipated to change the direction of spillover effects.
Within the G20 emerging markets, the International Monetary Fund has issued a warning that the average growth rate of 6% per year observed over the past two decades is anticipated to slow down. As a consequence, the expectations for growth over the medium term have been revised down to 3.7%.
The report emphasized how important it is for policymakers to keep adequate buffers and improve policy frameworks in order to deal with any potential shocks that may occur effectively.
According to its findings, “the cautious forecast for G20 EMs poses a potential threat to the progress and advancement of other emerging market and developing economies.”
