May 16, 2012
Can We Depend on EMs to
Keep Driving Global Growth?
Can we depend on EMs to keep driving global
growth? Not if policy-makers and investors take
growth for granted, argue Manoj Pradhan and Patryk
Drozdzik. EM macro-stability reduces some of the
cyclical ‘beta’, while socio-economic improvements
deliver long-term ‘alpha’. EMs have the ability to deal
with challenges but need to overcome complacency.  
Cyclically, if the euro area staggers on and EM
risks are subdued, rebalancing in both regions can
proceed and broad EM easing will come in 2H12.  
If EM growth deteriorates further, the risk of EM
sudden stops would rise. Policy-makers would have to
ease more aggressively.  
Finally, in the event of a ‘euro divorce’, sudden
stops in EM would be more likely. With fewer options,
DM and EM policy-makers could both use QE.
Structurally, cyclical easing needs to be consistent
with reallocating resources to more productive uses.
Otherwise, medium-term EM growth would be at risk. In
turn, that would threaten socio-economic improvements
and long-term EM outperformance.
A quick summary and full piece starts on page 2.