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As fears mount that the developed world is shifting from slow growth to no growth, emerging markets seem to many economists better placed to weather the storm than they were during the great financial crisis of 2008/2009.
However, Rob Subbaraman, chief Asian economist at Nomura in Hong Kong, said the region would run into headwinds from slower exports to the United States, Europe and Japan. This was the main factor behind a cut in Morgan Stanley’s projection of 2012 GDP growth in Latin America, announced on Thursday, to 3.6% from 4.6%.
A clear worry is that while the economic fundamentals look better in many emerging economies than they did in 2008, policy makers generally have less leeway. India is especially constrained: the general government deficit has more than doubled since 2007 and wholesale inflation exceeds 9%. The government and central bank, which has raised interest rates 11 times since March 2010, are still forecasting growth of at least 8%in the financial year that began in April.
“There is now less policy room to respond to a significant deterioration in domestic or external demand than in 2008, but adequate measures are still available,” according to Stephen Green, head of China research at Standard Chartered Bank in Shanghai.