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Emerging Markets, Converging Fears

As the current financial storm spread from a U.S. housing market problem to a credit crisis to a full-blown economic hurricane, its impact on emerging markets was initially confined to share prices. Equity indices in the so-called BRIC nations (Brazil, Russia, India, and China), which experienced a heady run-up from 2005 through 2007, all suffered losses far greater than their counterparts in western Europe and the United States. Despite these losses, many analysts assumed until recently that the underlying economic growth in these countries would continue. New economic data is forcing them to reconsider this notion, however, and raising the question of what a speed bump for emerging market growth would mean both economically and politically.

China brought these fears into focus in mid-October when it announced third-quarter economic growth of 9 percent (FT). Such growth may look strong compared with the prospect of shrinking economies in the United States or Europe, but this was China's lowest growth rate in five years and a dramatic comedown for one of the world's hottest economies. The new global economic outlook report by the International Monetary Fund (IMF) tells the same story, but more broadly. The report projects growth in developing Asia as a whole to fall from 9.3 percent in 2007 to 7.1 percent in 2009, and similar trends across most of the world's major emerging markets. Specifically, it estimates:

  • India's growth will fall from 9.3 percent in 2007 to 6.9 percent in 2009;
  • Russia's growth will also decline, from 8.1 percent to 5.5 percent over the same period;
  • Brazil's economy will slow from a 5.4 percent to 3.5 percent; and
  • Mexico will drop from a 3.2 percent growth rate to 1.8 percent.

Will these declines prove a momentary blip in a decades-long growth...

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