Economic slowdown in EMs impacts global export demand: Report

According to the QNB Group report the growth in emerging markets from Brazil to Indonesia, Russia and South Africa - is slowing down

The economic slowdown in emerging markets following the tightening of monetary policies by them last year has impacted the global export growth and the recovery in advanced economies, a report has said.

According to the QNB Group report, the growth in emerging markets (EMs) - from Brazil to Indonesia, Russia and South Africa - is slowing down, partly reflecting the tightening of domestic policies by these countries last year to stabilise foreign exchange rates.

This slowdown is impacting global export demand and affecting recovery in advanced economies as well, it added.

Overall, the slowdown in EMs could jeopardise the global recovery, unless advanced economies pick up the pace, the report added.

Since the US Federal Reserve's announcement last year to taper its asset-buying programme Quantitative Easing (QE), global capital flew out of emerging economies, forcing their central banks to tighten monetary policies to stabilise exchange rates.

While the tightening has been relatively successful in reversing the capital outflow in some countries, there has been an impact on the growth of emerging markets.

The last few weeks have seen a series of disappointing data releases in EMs. Brazil's Q1 real GDP growth rate slowed to 0.7% (quarter-on-quarter annualised), compared with 2.3% for 2013 as a whole. Indonesia's Q1 growth rate declined to 3.5% (5.8% in 2013). South Africa's s Q1 GDP contracted 0.6%, compared with growth of 1.9% in 2013.

The most dramatic fall was in Thailand with an annualised Q1 contraction of 8.2%, partly reflecting the current political instability. Against this trend, India saw a jump in Q1 GDP growth, partly due to a record USD 5 billion spending on elections, which added an estimated 2 percentage points to growth in the first quarter.

This generalised slowdown in EMs growth is impacting global trade flows. These economies account for approximately 40% of all global trade activities and have been among the largest contributors to the international export growth in recent years.

The slowdown in emerging markets is therefore having an impact on global export growth.

According to the World Trade Organisation, the USD value of global exports grew by a mere 1.7% year-on-year in the first quarter of 2014, compared with 4.3% in Q4 2013.

Most of this slowdown can be attributed to lower export demand from EMs. In turn, lower global export demand has contributed to lower Q1 real GDP growth in both the US (-1.0%) and the Euro area (0.2%).