rowth is slowing significantly in emerging economies and asset prices are falling sharply across the board. Is a crisis in emerging markets, echoing the one in advanced countries, already happening? After years of solid growth since the 2008 financial crisis, the combined effect of a decelerating China and a foreseeable end to super lax monetary policies in rich countries is laying bare substantial vulnerabilities. If relatively moderate shocks have provoked such trauma in these countries, one has to wonder what problems a more dramatic event would trigger. Will emerging countries be in a position to react? The market has been particularly brutal to those with significant current-account deficits, and their need to be financed from abroad, like Brazil, India, South Africa, and Indonesia. Fortunately, a combination of flexible exchange rates, high monetary reserves, improved monetary regimes, and a scaling down of foreign-currency debt provides some room for maneuver. However, years of political paralysis and postponed structural reforms have opened cracks in their economic structures. Argentina and Venezuela were extremely dependent on high commodity prices and easy international credit for growth. But the good times concealed weaknesses in other countries too. The growth slowdown is a greater concern than the recent asset-price volatility, even if the latter makes the headlines. If the current slowdown were to turn into something worse, now or in a few years, will the world economy be able to cope? In any case, international investors will not give up on emerging markets just yet, not when their long-term prospects still look much better than those of rich economies.
Are Emerging Markets in Crisis || FT View: James Kynge interviewed