The import crunch in rich nations has become a durable drag for the emerging markets which supply them. The slowdown could restrain exporters' growth for several years.
The financial crisis of 2008 interrupted nearly two decades of steady 7 per cent annual real growth in imports by members of the OECD, a group which includes almost all the developed economies. If the trend had continued, imports now would have risen to $12.8 trillion in inflation-adjusted terms. But they actually are $11.34 trillion, or 11 percent below trend. The difference comes to $1.5 trillion. Strip out rich countries' trade with each other, and the lost export opportunity for emerging markets stands at $600 billion. The trade slowdown is bad news for developing economies, especially those that depend on fickle foreign capital. For them, boosting domestic credit to counter lacklustre exports will turn risky when global money is no longer cheap.
While all developing nations need dollars to pay for their imports and to keep their financial systems well-lubricated, those that are able to earn hard currency by selling widgets to the world - like China - are better protected against global financial shocks than economies like India and Indonesia that need to sell stocks and bonds to foreigners to bring in dollars.
Dependence on hot money can cause a sudden loss of investor confidence. India, Indonesia, Brazil, South Africa and Turkey had to face the crunch last summer when the US Federal Reserve first hinted at tapering its asset purchases. Right now, Venezuela is squeezed for dollars and has the world's highest inflation rate.
Mostly, though, emerging economies have learned their lessons since last year's "taper scare". Unable to boost demand in the rich world, they are controlling domestic investment, consumption and public spending. But those policies restrict export opportunities for trading partners - emerging nations' trade with one another is also stagnating. It's a tricky environment. The more careful emerging markets will be loath to overstress GDP expansion until the buyers' strike comes to an end in rich nations, and it becomes relatively easy to earn hard-currency funds again. But that could mean several years of sacrificed growth.
