In a report released on Tuesday, the International Monetary Fund (IMF) highlighted the growing influence of domestic shocks in emerging economies within the G20 on global economic growth. Traditionally seen as recipients of global shocks, countries like China and Argentina now have significant impacts on the rich world due to their integration into the global economy through trade and commodity value chains.
The report, a chapter of the IMF’s World Economic Outlook, emphasized that spillovers from domestic shocks in G20 emerging markets, particularly China, have increased since 2000. These spillovers are now comparable in size to shocks originating from advanced economies. Specifically, domestic shocks in China can explain up to 10% of output variation in other emerging markets and 5% in advanced economies after three years. Similarly, shocks from other G20 emerging markets can account for up to 4% of output variation in both emerging and advanced economies.
The intertwined nature of economies underscores both the risks to the rich world from shocks in distant nations and the potential benefits if these economies rebound. With the ten emerging economies in the G20 more than doubling their combined share of global GDP since 2000, spillovers have increased almost threefold since the early 2000s, primarily led by China. However, spillover risks from Brazil, India, and Mexico have also grown moderately.
The IMF cautioned that the subdued outlook for G20 emerging markets could have ripple effects, setting back growth and development across other emerging market and developing economies. To mitigate these risks, policymakers are urged to maintain sufficient buffers and strengthen policy frameworks. Additionally, the IMF emphasized the importance of ongoing efforts to manage potential shocks and promote sustainable growth.
