Global Weekly: Key Channels of Growth Spillovers from Emerging Markets
A growth slowdown in emerging markets, in particular in one or several of the BRICS - Brazil, Russia, India, China and South Africa – could have significant spillovers to the rest of the world through trade and finance. Emerging markets have become major export destinations for the rest of the world as well as important sources of remittances, commodity supply and demand, foreign direct investment and official development assistance.
Reflecting their deepening integration into global supply chains, emerging markets now account for 32 percent of global trade, compared with 16 percent in 1994. The value added from emerging markets embedded in U.S. or Euro Area exports more than doubled to about 7 percent in 2011 from 3 percent in 2000. Among emerging markets, trade linkages with the BRICS, especially China, have increased in the last two decades. The BRICS accounted for most of the increase in trade flows to emerging markets and frontier markets between 2000 and 2014. Most of the emerging markets’ value added trade with other emerging markets and frontier markets is with the BRICS. As the largest economies in their respective regions, the BRICS account for a sizeable share of regional exports.
The BRICS, in particular China, have played a significant role in global commodity markets. Rapid growth in China’s industrial production through the 2000s was accompanied by a sharp increase in demand for metals and energy. Virtually all of the increase in global metals demand and more than half of the increase in global primary energy demand between 2000 and 2014 originated in China. India’s demand for primary energy and metals has also grown rapidly but less than China’s, partly as a result of more services-based growth. Large emerging market and frontier market commodity producers have benefitted from this increased demand. Some emerging and frontier market economies accounted for 20 percent or more of the global exports of commodities such as nickel, copper, oil, and iron ore. Most commodity prices began to slide in early 2011 as new capacity came onstream at the same time as growth in major emerging markets increasingly tilted away from commodity-intensive industrial production.
Emerging markets have started playing a major role in global financing flows, including foreign direct investment, banking and portfolio investment, remittances, and official development assistance. Emerging markets have attracted a large amount of foreign direct investment – 30 percent of global FDI inflows, on average, during 2000-14. About two thirds of this amount have gone to the BRICS. China, the largest single recipient of foreign direct investment inflows among the BRICS, has also become an important source country for FDI, especially in Sub-Saharan Africa and other natural resource-producing countries. Bank claims and portfolio investment to emerging markets have doubled since the early 2000s to about 6 percent and 5 percent of global GDP, respectively. BRICS account for a sizeable portion of these flows. Emerging markets are now among the largest source and destination countries for remittances. Five emerging market and frontier market source countries account for 20 percent of global remittance outflows. The Gulf Cooperation Council (GCC) countries provided significant ODA to Egypt in 2000-14. China has become an important source of official development assistance to Sub-Saharan Africa while India is providing ODA to Bhutan amounting to 37 percent of GDP in fiscal year 2015/16.
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