Emerging economies able to secure steady growth

DAVOS - Emerging economies are expected to maintain vigorous growth, despite various risks and challenges, as they have started adapting themselves to the new circumstances.

This was the consensus of political and business leaders from across the world attending the ongoing annual meeting of the World Economic Forum (WEF) here in this Swiss town.

Doubt and concerns

In spring last year, developed countries began moving out of recession. However, due to expectations of a tapering of the US quantitative easing measures, the growth of a number of emerging economies began to slow.

As the slower growth was mixed with rising deficits, decreasing investment and sharp fluctuations in exchange rates, pessimism has emerged and been spreading, reflecting the doubt and concerns of both academia and the market.

Taking advantage of such worries, gloom merchants have turned up their volume, claiming the change of direction in the global flow of capital is putting an end to the marvel of emerging economies.

Not really, said Brazilian President Dilma Rousseff on Friday at the WEF meeting. Rejecting the assertion that emerging economies would become anemic in the post-crisis era as rash, she said they would remain energetic and continue to play a contributive role.

Michael Spence, a professor at the New York University Stern School of Business, said a way to gauge an economy's growth prospect was to find out whether it had the resources, policy expertise and political will to restore or alter its development mode accordingly.

In general, he noted, emerging economies passed the tests and proved to be flexible and resilient.

Weaknesses and risks?

The doubt and concerns also stem from emerging economies themselves and the environment they face.

As noted by Yves Zlotowski, chief economist at the French Coface Group, emerging economies suffer much from domestically originated structural problems and financial fragility.

US monetary policy, he said, served only as a catalyst, which exacerbated the volatility of financial markets in emerging countries.

According to Zhu Min, deputy managing director of the International Monetary Fund (IMF), emerging markets face three major risks: no major pick-up in developing economies' growth; an end to commodity price surges, which have helped resource-rich countries; and the structural changes of the global economy, which are fundamentally affecting the emerging markets and developing economies.

Already aware of the risks, some emerging countries have begun to take steps to initiate a moderate slowdown of economic growth.

Spence said China's new round of aggressive and comprehensive reform was likely to transform the Chinese growth model and sustain future growth in the 7 percent-plus range.

Challenges and opportunities

Even though their economic growth is slowing, emerging economies are blessed with a host of development opportunities.

As the Brazilian president noted, emerging markets are in social transformation, with high demand for investment in energy, industry, agriculture and infrastructure, which will lead to many investment opportunities.

Meanwhile, Rousseff said, emerging economies were trying to expand their domestic markets, which consisted of "hundreds of millions, sometimes even billions of consumers."

From that perspective, even if developed economies were recovering, emerging economies would continue to play their strategic role, Rousseff said, adding the recovery of the rich world would also "create a more favorable global economic environment for everyone."

In order to cope with the rapidly changing global environment, emerging economies also need to adjust their economic policies and structures.

For example, Spence said, the challenge for India was to reverse the pattern of political gridlock and unleash a set of reforms and investments that would restore confidence and trigger new growth potential.

In the professor's view, the growth of emerging economies will be somewhat uneven in 2014 but is likely to pick up speed in 2015 and beyond.