In the last 20-years G20 EMs have rocketed and become a much bigger component of the global economic dynamic. To remind, they are: Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey.
None though has been more influential or become more important than China and the paper highlighted today, a Working Paper from the IMF by researchers Hany Abdel-Latif and Adina Popescu, looks to quantify China’s growing effect on the Rest Of the World (ROW).
At the same time the work examines the effect of other G20 EMs for clues as to whether or not progress there could mitigate the negative effects of a slowing China? Could India, say, which is expected to produce 6.5% GDP growth in the medium term take up the slack?
As the chart shows the answer to the India poser is ‘Heck no!’ In fact, Mexico has a bigger effect but I suspect a lot of Mexico is China in disguise so the China effect may even be larger than the graphic suggests.
The paper goes through how the smaller EMs have significant regional effects. Russia, for example, weighs on Eastern Europe and so on but what comes out loud and clear is how important China is now for the ROW.
In numbers the researchers show a 1% growth shift in China translates to between a 0.2%~0.4% change for advanced economies and a 0.3%~0.8% shift for emerging economies.
Planners in both should therefore pay particular attention to developments in China for clues as to whether a following or a head wind may be coming their way from that direction. The paper strongly hints a 20-year following wind may be in the process of turning.
You can access the paper in full here Spillovers from Large Emerging Economies: How Dominant Is China?
Happy Sunday.