Emerging market growth at slowest pace since 2009 slump

Emerging market economic growth has slipped to its slowest pace since the 2009 slump, new figures suggest, as developing nations struggle with the impact of a stronger US dollar and weaker commodity prices.

The preliminary data, from three research companies that monitor EM growth figures, will deepen concerns for the health of the global economy.

They emerged as Christine Lagarde, managing director of the International Monetary Fund (IMF), said the world should brace for low growth twinned with high debt and unemployment unless policymakers took action.

"Today, we must prevent that new mediocre from becoming the 'new reality'," said Ms Lagarde. Her warning came against a backdrop of dismal US jobs data last week, persistent deflation in the eurozone and low oil prices.

The decline in commodity and oil prices has hit the export revenues of some key EM countries such as Brazil and Russia, while the strong US dollar has exacerbated outflows of capital from several leading EMs, including China, Thailand, Malaysia and South Korea. Such net capital outflows are expected to increase, according to analysts.

From an emerging market perspective, the current slowdown differs in character from the slump of six years ago during the financial crisis.

"The financial crisis was an external shock that EMs were able to recover from pretty quickly," said Neil Shearing, chief emerging markets economist at Capital Economics.

"This slowdown is longer in the making, and is driven largely by internal factors," said Mr Shearing, predicting that the slowing momentum represented a "new normal" likely to persist for a decade or so.

Capital Economics, which monitors preliminary data from 46 emerging markets, expects average EM economic growth in the first three months of the year to decline to 4 per cent year on year, down from 4.5 per cent in the fourth quarter of last year - the lowest level since 3.9 per cent in the final quarter of 2009.

Referring to separate estimates of average growth in gross domestic product, Felix Huefner, chief economist at the Institute of International Finance, said the year-on-year expansion rate for EMs would be 3.4 per cent in the first quarter, down from 3.8 per cent in the final quarter of last year and 4.6 per cent in the first quarter of 2014.

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Some of the largest EM countries appear to be showing the most emphatic slowdowns, according to Jasper McMahon of Now-Casting Economics, a London-based company that also crunches preliminary data.

Brazil's economic growth rate, for instance, appears to have slumped to a negative 1.24 per cent in the first quarter, down from a negative 0.3 per cent in the fourth quarter of last year, he said. China's expansion rate may decline to 6.82 per cent, from 7.3 per cent in the fourth quarter. Mexico, a relative EM bright spot, could see a slide from 2.6 per cent in the fourth quarter to 2 per cent in the first.

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