Conference « Lost in Transition: Emerging Markets in the Global Economy », by Dr. CANUTO – 13/02/2014, Paris campus

CANUTO_OtavianoDuring 2013, enthusiasm about emerging market economies’ post-2008 economic resilience and growth potential has given way to bleak forecasts. Many now believe that the recent broad-based growth slowdown in emerging economies is not cyclical, but a reflection of underlying structural flaws.

This interpretation contradicts those who, not long ago, were anticipating a switchover in the engines of the global economy, with autonomous sources of growth in emerging and developing economies compensating for the drag of struggling advanced economies.

It has become apparent that emerging-market enthusiasts underestimated at least two critical factors. First, emerging economies’ motivation to transform their growth models was weaker than expected. The global economic environment – characterized by massive amounts of liquidity and low interest rates stemming from unconventional monetary policy in advanced economies – led most emerging economies to use their policy space to build up existing drivers of growth, rather than develop new ones. The second problem with emerging economy forecasts was their failure to account for the vigor with which vested interests and other political forces would resist reform. The inevitable time lag between reforms and results has not helped matters.

Last summer, the mere suggestion of a monetary-policy reversal in the United States sparked a surge in bond yields, which triggered an asset sell-off in several major emerging economies.

Perhaps this experience will have served as a wake-up call for these countries’ leaders. Only by recognizing the exhaustion of old growth patterns and pursuing the needed structural reforms can emerging economies achieve strong, stable, and sustainable GDP growth – and fulfill their potential as the global economy’s main engines.

Dr. Otaviano Canuto is the Senior Advisor on BRICS in the Development Economics Department of the World Bank. He has been Vice President at the World Bank and the Inter-American Development Bank. Previously he was Secretary for International Affairs at the Brazilian Ministry of Finance. He was Professor of Economics at the University of São Paulo and University of Campinas (UNICAMP) in Brazil. He is a columnist for the Project Syndicate.

Conference: “Lost in Transition: Emerging Markets in the Global Economy”

By Dr. Otaviano Canuto, Senior Advisor on BRICS in the Development Economics Department World Bank. February 13th 2014 at 6.30pm – IÉSEG Paris Campus – Socle de la Grande Arche 1, Parvis de La Défense – 92044 La Défense Cedex

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