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19 Dec, 2013:10:56:24

Emerging Trend

Emerging markets sees end of good times: Razeen Sally
Dec 19, 2013 (LBO) - Emerging markets are seeing the end of almost a decade of good times as the lack of new reforms to spur economic activity takes its toll, a top international economist said.

Developing economies continued to grow following the end of a global financial crisis, bringing continuing high growth, Razeen Sally, a visiting professor at the Lee Kuan Yew School said in Colombo.

"Basically 10 good years have come to the end," he told an LBR-LBO Debrief forum on the economic outlook for 2014.

Sally said a 'commodity super cycle' was also ending.

African and South American countries that had benefitted from a commodity boom may see slower growth.

In many emerging countries, a lot of problems that were hidden during the good time were now showing up.

"Governments did not take significant reforms because the incentives were not there," Sally said.

"Now growth is coming down, water lines are receding, the detritus is starting to show."

Growth in Asia has been driven by loose money which has resulted in high levels of debt, he said.

In China growth has been led by high levels of investments. That model was no longer giving results and over-investment was becoming evident, with mushrooming ghost towns and opera houses.

In India higher tax revenues has been spent on vote buying exercises and reforms had fallen by the wayside.

In China factor markets in finance, energy and labour needed to be liberalized.

But in China the leadership had changed and the new leaders had announced key measures to open up factor markets. But vested interests in state enterprises may make it difficult to do changes quickly he said.

In India a change in government was expected by some, which may change the outlook.

But recent high growth had narrowed the gap between the west and developing nations, accelerating the convergence of the two.

Sally said China was likely to become the largest economy in the world in terms of purchasing power parity.

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