Summary of the July Monthly Report
20.07.2015 | Deutsche Bundesbank DE
Slowdown in growth in the emerging market economies
The group of emerging market economies have experienced impressive growth over the past 20 years, substantially boosting their share of global economic output and worldwide trade. Recently, however, economic momentum has tailed off considerably in a large number of emerging market economies, and the growth lead they once enjoyed over the industrial countries has narrowed.
At first, many thought this was due to cyclical strains, notably the short-lived lull in demand in the industrial countries. The fact that the slowdown is so persistent suggests, however, that it is rather the underlying path of expansion that has flattened. Given the advanced stage of the convergence process, it could be said that this is a "natural" easing of the rate of expansion. Nevertheless, such is the scale of the slowdown that a number of additional structural factors are also likely to be at play in several emerging market economies.
In China, the weaker pace of growth can probably be partly explained by the decreasing structural change at the sectoral level and the lessening impact of growth impulses stemming from earlier market reforms. For the emerging market economies specialising in the export of raw materials, the end of the commodities boom appears to be a relevant factor. In the emerging market economies of eastern Europe, the reduced pace of growth reflects a return to more normal circumstances, now that the high rates of growth seen immediately prior to the financial crisis have proven to be unsustainable. More moderate investment levels and neglect of the economic policy reform course are also holding back economic growth.
The predominantly structural nature of the slowdown would suggest that the aggregate pace of growth in the group of emerging market economies will remain muted in the years ahead. Growth could diminish still further if things take a turn for the worst. For the advanced economies, this outlook means that the underlying pace of their exports to the emerging market economies is likely to be lower in the foreseeable future.
If the Chinese economy were to undergo a sharp downturn, the ripple effects would no doubt also be felt in Germany. The slowdown in the pace of aggregate emerging market growth shows that a speedy and buoyant catch-up process cannot be taken for granted. The emerging market economies need new reform stimuli to put growth back on a higher trend path over the medium term.
Adjustment patterns of enterprises in the German labour market during the Great Recession – selected findings from a special survey
The German labour market was characterised by a comparatively high degree of stability in terms of employment and unemployment during the Great Recession of 2008-09. Such resilience was exceptional both historically and by international comparison and was the outcome – as is well documented in numerous studies – of the interaction of steps taken to enhance flexibility in collective pay agreements and labour market policy reforms in the recent past which allowed enterprises to provide an accurate targeted response to the massive global shock in the fourth quarter of 2008 and the first three months of 2009.
A new Bundesbank study adds to the existing research findings on this topic by investigating whether enterprises that were exposed to a rather more sustained structural shock in the crisis behaved differently from those that were affected only in the short term. The data pool was derived from a survey of companies conducted in the summer of 2014 by the Ifo Institute on behalf of the Bundesbank among the enterprises which usually take part in the Ifo's business survey. The analysis focused on the production sector excluding construction since this sector was hit particularly severely by the global slump in demand. All in all, the survey results indicate that enterprises subjected to only a temporary dip in demand were more likely, in the crisis, to implement cyclical staffing measures such as short-time working and to pay greater attention to not losing skilled labour. By contrast, enterprises facing the prospect of a lasting slump in sales tended to make greater use of structural staffing instruments with a more lasting impact.
Generally speaking, there is a risk that labour market interventions motivated by economic policy considerations will be used by enterprises to delay necessary structural adjustments. However, in the specific situation of the Great Recession, it appears that a necessary process of structural change was still taking place to a certain extent in some sectors, despite the labour market policy measures of the Federal Government, which notably included making it easier to claim short-time working benefits. One indication of this is the nuanced behaviour of enterprises, as cyclical labour market policy measures were chiefly adopted by those which had to cope with no more than a temporary lull in sales.