G20 Summit: Emerging Economies at Risk of Being Sidelined

Strategic Insights -

The G20 summit's focus on major countries' economic regulation and stimulus spending has overshadowed the plight of emerging economies, whose potential for recovery and growth could be severely impacted by the rise of protectionism. Emerging countries, with a combined GDP of around $3-trillion, are not as insignificant as some investors and politicians in the developed world may think. The collapse of these economies, which include countries like Ukraine, the Baltic states, Bulgaria, Romania, and Hungary, could have a significant impact on Western Europe's economic recovery.

Key Takeaways:

  • The GDP of Eastern Europe, including Russia, is around $3-trillion, comparable to the size of Germany, or Canada and Britain combined.
  • Emerging countries account for almost all of Western Europe's export growth in recent years, with exports to Eastern Europe accounting for nearly all of the export growth.
  • The collapse of emerging economies like Ukraine, the Baltic states, Bulgaria, Romania, and Hungary could strangle big Western banks, such as Italian, Austrian, and Swedish banks, which have extended their networks into Eastern Europe.
  • The International Monetary Fund (IMF) is likely to get a substantial boost to its financial resources at the G20 summit, a commitment made at the G20 finance ministers' gathering in Horsham, England, last month.
  • Economists say the IMF needs another $500-billion in firepower to bail out the most troubled countries, though it may not get that much at first.
  • Pressure on the IMF to bail out struggling countries grows by the week, with emerging economies facing $400-billion in short-term external debt that must be paid off or rolled over.
  • Growing protectionism is a significant concern among emerging economies, where exports are crucial to stability and growth.
  • A recent World Bank report said 17 of the G20 countries have enacted protectionist measures since the G20 last met in November.

Statistics:

  • $3 trillion: The combined GDP of Eastern Europe, including Russia.
  • 80%: The percentage of GDP that exports account for in countries like Hungary and the Czech Republic.
  • 17: The number of G20 countries that have enacted protectionist measures since the G20 last met in November.
  • $400 billion: The amount of short-term external debt that emerging economies must pay off or roll over.
  • $47 billion: The credit line sought by Mexico from the IMF.
  • $1.3 billion: The amount of credit sought by tiny Bosnia and Herzegovina to help get through the recession.
  • $500 billion: The additional funding the IMF says it needs to bail out the most troubled countries.

Sources:

  • [The Globe and Mail, "G20 summit: Emerging economies at risk of being sidelined", Ereguly, 2009]
  • [World Bank report, "Protectionism on the Rise: 17 G20 Countries Have Enacted Protectionist Measures Since November"]