IMF: Rich-world Growth Hit by Emerging Economies Shocks in G20

A report published by the International Monetary Fund (IMF) on Tuesday stated that growth in rich countries is affected by the shocks facing emerging economies in the G20.

He added that countries, starting from China, the second largest economy in the world, to Argentina, which is vulnerable to debt default, have become an integral part of the global economy, especially through trade and commodity production cycles, and are no longer “just a recipient of global shocks.”

“Since 2000, spillover effects from domestic shocks in the emerging markets of the G20, especially China, have increased and become more severe,” the International Monetary Fund wrote in a chapter of its World Economic Outlook released ahead of the spring meeting of the Bank and the International Monetary Fund in Washington, D.C., next week. "The magnitude is comparable to those resulting from shocks in advanced economies."

The report added that domestic shocks in China could account for up to 10% of the variation in output in other emerging markets after three years, and 5% in advanced economies, while shocks in other emerging markets in the G20 account for up to 5% of the variance in emerging markets and other economies. 

The interconnected nature of economies underscores the risks to the rich world from shocks in distant countries, but it also underscores the boost that rich countries could get if emerging economies strengthen again.

The ten emerging economies in the G20 - Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey - have succeeded in doubling their combined share of global GDP since 2000.

Overall, spillovers have nearly tripled since the early 2000s, led by China, while spillover risks from Brazil, India, and Mexico have also increased moderately.

China has long faced economic problems, with high levels of local government debt limiting investment in infrastructure, and the real estate market crisis entering its fourth year, while consumer and investor confidence is also under pressure.

Regarding Russia, the IMF said that the shift of the Russian economy towards Asia is likely to change the direction of spillover effects.