Global spillovers from the growth slowdown in emerging economies

[Organisation for Economic Co-operation and Development] A concern highlighted in the latest OECD Economic Outlook is the growth slowdown in the large emerging market economies (EMEs). With the six BRIICS alone now accounting for 30% of world GDP (at PPP rates) and 15% of global equity markets, a slowdown in EMEs has larger effects on the global economy than in the past, via trade and financial cross-border linkages.

Indeed, a sharp slowdown in domestic demand in EMEs, possibly brought about by both tighter financial conditions as US Treasury yields rise and a slowdown in trend growth, would have noticeable trade spillover effects. Global macro-model simulations suggest that a one-year, 2 percentage point decline in domestic demand growth in all non-OECD countries apart from China (where growth is holding up) could lower OECD GDP growth by around 0.4 percentage points in the first year (see first figure below).

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