Shocks in G20 Emerging Economies Hit Rich-World Growth, IMF Says

A view of an advertising billboard for the upcoming annual meetings of the International Monetary Fund and the World Bank, in Marrakech, following last month's deadly earthquake, Morocco October 1, 2023. REUTERS
A view of an advertising billboard for the upcoming annual meetings of the International Monetary Fund and the World Bank, in Marrakech, following last month's deadly earthquake, Morocco October 1, 2023. REUTERS
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Shocks in G20 Emerging Economies Hit Rich-World Growth, IMF Says

A view of an advertising billboard for the upcoming annual meetings of the International Monetary Fund and the World Bank, in Marrakech, following last month's deadly earthquake, Morocco October 1, 2023. REUTERS
A view of an advertising billboard for the upcoming annual meetings of the International Monetary Fund and the World Bank, in Marrakech, following last month's deadly earthquake, Morocco October 1, 2023. REUTERS

Domestic shocks in emerging economies in the Group of Twenty (G20) are increasingly impacting growth in the rich world, said a report released by the International Monetary Fund ahead of its next week's Spring Meetings in Washington.
The Spring Meetings, to convene from April 17 to 19, DC, bring together central bankers, ministers of finance and development, parliamentarians, private sector executives, representatives from civil society organizations and academics to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness.
IMF Managing Director Kristalina Georgieva will kickstart the meetings, presenting the outlook for the global economy and policy priorities.
Saudi Arabia's minister of finance, Mohammed Al-Jadaan, will chair the International Monetary and Financial Committee meeting. Al-Jadaan was chosen as Chair of the Committee for a term of three years, effective January 4, 2024.
The Committee deliberates on the principal policy issues facing the IMF. It normally meets twice a year—in the spring and during the IMF/World Bank Annual Meetings in the fall.
“Since 2000, spillovers from domestic shocks in G20 emerging markets — particularly China — have increased and are now comparable in size to those from shocks in advanced economies,” the IMF wrote in a chapter of its World Economic Outlook report.
Those countries -- ranging from China, the world's second-largest economy, to default-prone Argentina -- have become so embedded in the global economy, particularly via trade and commodity value chains, that they are “no longer simply on the receiving end of global shocks,” it added.
The IMF also showed that since China’s accession to the World Trade Organization in December 2001, emerging markets of the G20 now account for about 30 percent of global economic activity and about one quarter of global trade.
At the same time, these economies have become increasingly systemic through their integration into global value chains (GVCs), with the potential to move global markets, it showed.
“This implies that spillovers to growth from shocks originating in these economies—as well as from their structural slowdown over the past decade—can have far greater ramifications for global activity,” the report added.
It said the intertwined nature of economies underscores the risks to the rich world of shocks in faraway nations but also the boost they could get if the economies strengthen again.
The ten emerging economies in the G20 - Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Türkiye- have more than doubled their combined share of global GDP since 2000.
“Not only has this helped provide global momentum for growth and trade, it has also been a force for lower output volatility—thanks to cross-country diversification,” the IMF report said.
Earlier, the Fund’s data showed Saudi Arabia's GDP grew from $189.5 billion in 2000 to $1.1 trillion in 2023.
However, fading growth prospects for G20 EMs have driven more than half of the 1.9 percentage point slowdown in medium-term global growth since the global financial crisis, with China accounting for about 40 percent.
The medium-term growth outlook for G20 EMs has weakened by 0.8 percentage point to 3.7 percent as a result of scars from the pandemic and the price shocks that followed the Russian invasion of Ukraine.
Overall, spillovers have increased almost threefold since the early 2000s, led by China, while spillover risks from Brazil, India and Mexico have also grown moderately.
China is struggling to overcome prolonged economic headwinds, with high levels of local government debt limiting infrastructure investment and the property market entering its fourth year of free fall. Consumer and investor confidence are also under pressure.
The IMF said the Russian economy's pivot toward Asia will likely shift the direction of spillover effects.
Across the G20 emerging markets, the IMF warned that average growth of 6% per year over the past 20 years would slow and lowered the medium-term growth outlook to 3.7%.
Global Economic Growth
The IMF said global economic growth will reach just 2.8% by 2030, a full percentage point below the historical average, unless major reforms are made to boost productivity and leverage technologies such as artificial intelligence.
“Without ambitious steps to enhance productivity, global growth is set to fall far below its historical average,” the IMF said in a chapter of its forthcoming World Economic Outlook, warning that expectations of weak growth could discourage investment, possibly deepening the slowdown.
The global lender said the persistent low-growth scenario, combined with high interest rates, could also restrict governments' ability to counter economic slowdowns and invest in social welfare or environmental initiatives.
“All this is exacerbated by strong headwinds from geoeconomic fragmentation, and harmful unilateral trade and industrial policies,” it said in a blog accompanying Chapter 3 of the WEO, to be released in full next Tuesday.
A year ago, the IMF said it expected medium-term growth to hover around 3%. The new forecast reflects downward revisions for medium-term growth across all income groups and regions, most significantly in emerging market economies.
The IMF urged countries to take urgent action to counter the weakening growth outlook, warning that it worsened prospects for living standards and global poverty reduction.
“An entrenched low-growth environment, coupled with high interest rates, would threaten debt sustainability and could fuel social tension and hinder the green transition,” it said.



Oil Slips as Iran-Israel Conflict Enters Sixth Day

FILE PHOTO: A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia, June 4, 2023. REUTERS/Alexander Manzyuk/File Photo
FILE PHOTO: A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia, June 4, 2023. REUTERS/Alexander Manzyuk/File Photo
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Oil Slips as Iran-Israel Conflict Enters Sixth Day

FILE PHOTO: A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia, June 4, 2023. REUTERS/Alexander Manzyuk/File Photo
FILE PHOTO: A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia, June 4, 2023. REUTERS/Alexander Manzyuk/File Photo

Oil prices fell on Wednesday, after a gain of 4% in the previous session, as markets weighed up the chance of supply disruptions from the Iran-Israel conflict and as they ponder a direct US involvement.

Brent crude futures fell 93 cents, or 1.2%, to $75.52 a barrel by 0918 GMT. US West Texas Intermediate crude futures fell 88 cents, also 1.2%, to $73.96 per barrel.

US President Trump warned on social media on Tuesday that US patience was wearing thin, and called for an "unconditional surrender" from Iran.

While he said there was no intention to kill Iran's leader Ali Khamenei "for now," his comments suggested a tougher stance toward Iran as he weighs whether to deepen US involvement.

A source familiar with internal discussions said one of the options Trump and his team are considering included joining Israel on strikes against Iranian nuclear sites.

A direct US involvement threatens to widen the confrontation further, putting energy infrastructure in the region at higher risk of attack, analysts say.

"The biggest fear for the oil market is the shutdown of the Strait of Hormuz," ING analysts said in a note.

"Almost a third of global seaborne oil trade moves through this chokepoint. A significant disruption to these flows would be enough to push prices to $120 [a barrel]," the bank added.

Iran is OPEC's third-largest producer, extracting about 3.3 million barrels per day (bpd) of crude oil.

Meanwhile, Iranian ambassador to the United Nations in Geneva Ali Bahreini said on Wednesday that Tehran has conveyed to Washington that it will respond firmly to the United States if it becomes directly involved in Israel's military campaign.

Markets are also looking ahead to a second day of US Federal Reserve discussions on Wednesday, in which the central bank is expected to leave its benchmark overnight interest rate in the range of 4.25% to 4.50%.

However, the conflict in the Middle East and the risk of slowing global growth could potentially push the Fed to cut rates by 25 basis points in July, sooner than the market's current expectation of September, said Tony Sycamore, market analyst with IG.

Lower interest rates generally boost economic growth and demand for oil.

Confounding the decision for the Fed, however, is the Middle East conflict's potential creation of a new source of inflation via surging oil prices.

US crude stocks fell by 10.1 million barrels in the week ended June 13, market sources told Reuters, citing American Petroleum Institute figures on Tuesday. Official Energy Information Administration data is due later on Wednesday.