Emerging market challenges unlikely to be overcome quickly, ECB says

Wednesday, 4 May 2016 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The weakness of emerging economies could prove lasting as deep-seated structural problems rather than fleeting troubles are the root cause, posing a risk to growth even in advanced economies, the European Central Bank said on Tuesday.

ECB President Mario Draghi has repeatedly cited subdued growth in emerging market as a drag on the euro area recovery and one of the reasons underpinning its ultra-easy policies.

Elaborating on this point in a regular economic bulletin, the ECB said potential growth among some key emerging economies has weakened, raising the risk of a “sizable” negative impact on global growth.

It cited waning productivity growth, weak investments, rising external debt, tighter financing conditions and deteriorating demographics as some of the reason behind the fading momentum.

Key emerging economies have been under strain this year with China’s slowdown and rebalancing setting off waves of turbulence on financial markets earlier this year.

Although emerging markets still generate 70 percent of global growth, their growth rate declined for the fifth straight year last year with many key economies likely weighing on growth both in 2016 and 2017, the IMF said earlier.

“Some of these challenges are unlikely to be overcome quickly,” the ECB said. “The impact of weak investment, infrastructure bottlenecks and capacity constraints could be stronger than expected.”