Emerging market meltdown: whose fault is it anyway?

 

States with emerging markets are running around desperately to keep their economies from becoming the next Greece.

Economies by the likes of Brazil and Russia have been decreasing throughout the year with many African states, such as Angola and the Republic of Congo, experiencing a slow pace in economic growth.

These are among many countries who have seen impressive growth over the last decade, with emerging markets having contributed to a 75% rise in world nominal GDP in terms of the US dollar.

But what caused these markets’ numbers to slump?

Some economists blame the political conditions of these states, but most are pointing fingers at the godfather of emerging markets, China.

Thanks to China’s miracle growth syrim, rapid industrialisation, their GDP spiked upward with 6.2 percentage points from 2000-2007. China’s growing economy gave the ability to help develop other countries in Asia and Africa, having them take a bite from everyone’s pie.  The big ‘C’ has been responsible for more than 25% of international growth in the last number of years.

But when the Chinese stock market crashed mid-June this year, emerging countries connected to China through trade also experienced stock losses and crippling capital outflows.

For the past 18 months China’s economy slowed to a dragging pace as wage increase demands were met, causing oil and industrial metal prices to fall. In an attempt to turn the tides, Beijing started to devalue the Yuan, which may have worsened matters.

States in Africa and Asia who are dependent on China’s export demands were hit the hardest with the crisis.

The meltdown didn’t just come out of the blue.

Although it’s not all entirely China’s fault.

The International Monetary Fund started calculating the weakening in growth of emerging economies since 2011.

Emerging economies weathered the 2008 storm with the help of one another, but as developed nations started bouncing back from the crisis emerging markets increased their imports from EU nations and the US. This led to the weakening of import demands from their fellow emerging markets.

Another factor that contributed to the slowing down of growth in emerging economies are less accommodating fiscal policies that these economies demand. Until these states remove their policy barriers, these modest growth rates will continue for some time to come.

China may have been the last wind to push the developing economies into a meltdown, but they were definitely not the sole cause.

Pitched & Unpublished: 1 October 2015