Emerging markets are suffering an unprecedented and broad-based slowdown that threatens the future of the global economy, researchers at the International Monetary Fund have warned.

Not only did emerging market growth stall in the wake of the financial crisis, it has kept falling across a wide range of countries and unlike in advanced economies the IMF does not forecast a recovery.

The slowdown marks a big change in the pattern of global growth and the spillovers could hurt advanced economies, too, warn the researchers.

“Emerging markets as a group were growing at about 7 per cent before the crisis,” said Hamid Faruqee, a division chief in the IMF’s research department. “We now see them growing at about 5 per cent going forward.”

The Fund’s paper finds that growth is slower across a swath of developing countries, not just the largest economies such as China and India. Expansion rates in more than 90 per cent of emerging markets are lower than before the 2008 turmoil.

“The slowdown seems to be quite broad based,” said Mr Faruqee. Such a synchronised deceleration is unique outside of a recession or financial crisis.

According to the IMF research, trade links are an important reason for the slowdown, with emerging markets suffering from weaker growth in their trading partners. But there are also signs of deeper problems, with evidence that productivity improvements are contributing less to growth.

“The fact that we project some rebound in growth for the advanced economies and are lowering it for the emerging economies is suggestive of something internal among the EMs,” said Mr Faruqee.

According to the IMF’s estimates, a one percentage point slowdown in emerging market growth lowers growth in advanced economies by quarter of a percentage point because of reduced trade.

That means the 2 percentage point reduction in emerging market growth since before the financial crisis could mean a 0.5 percentage point reduction in growth for rich countries such as the US. This suggests the weakness in developing countries could be an important reason for the recent growth disappointments in advanced economies.

The IMF said an emerging market slowdown could also mean lower commodity prices and possible trouble for banks that have overextended their lending in countries where growth has abated.

According to the IMF research paper, the weakness could be a “prelude for more modest growth rates in the years to come, when demand management policies are less effective than supply-side reforms”.

It says emerging markets will need to “remove supply bottlenecks, boost productivity and move up in the value chain” if they want to sustain growth. “Otherwise they risk generating imbalances that will come back to haunt them,” the paper says.

The Financial Times