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The global economy is facing its third major brake on expansion in five years as emerging markets slow from China to Brazil, provoking debate about how much policy makers should respond.

Three years after industrializing nations led the world out of the U.S. mortgage meltdown-induced recession, the reliability of the power source is waning as Europe’s debt crisis persists. The International Monetary Fund sees them growing an average 5.8 percent in the half-decade through 2016, almost two percentage points less than the five years before the 2009 slump.

Finance chiefs at the IMF and World Bank annual meetings left Tokyo this weekend at odds over how to address the issue, with South Korea’s central bank chief urging Asia to add stimulus as Russia and Brazil called on rich nations to fix their own challenges. At stake is a world economy Bank of Israel Governor Stanley Fischer calls “awfully close” to recession.

“There is a concern that in the near term the engine of growth that provided such a great support seems to be slowing,” said Jacob Frenkel, chairman of JPMorgan Chase International and Fischer’s predecessor in Israel. “They still continue to grow, but we’re seeing a slower pace than anticipated all over the world.”

Europe’s Steps

The IMF meetings ended yesterday with both expressions of optimism that Europe now has a policy infrastructure to quell its turmoil, and a clash between Germany and the fund over what lies next for cash-strapped nations such as Greece.

Developed economies including Switzerland and Japan joined Brazil in sounding the alert on excess currency strength, while delegates disagreed over the right degree of budget austerity as they pushed the U.S. to avoid tumbling over its fiscal cliff.

“Ministers discussed a short-term response for the global economy, but their opinions weren’t harmonized in one direction,” South Korean Finance Minister Bahk Jae Wan told reporters in Tokyo. “The world has a leadership problem.”

Investors may still not be fully tuned into the risks, said Barry Eichengreen, an economics professor at the University of California, Berkeley. While U.S. stock benchmarks last week fell the most since June, the Standard & Poor’s 500 Index is still up 19 percent from a year ago. By contrast, the MSCI Emerging Markets Index has risen less than 6 percent the past 12 months.

“I’m worried that stock markets in the United States in particular have gotten ahead of economic growth,” Eichengreen said in an interview in Tokyo.

Euro Gains

European stocks and U.S. futures rose as China said inflation slowed -- giving the government room to ease policies if needed -- and economists predicted an increase in American retail sales. The euro strengthened to a one-week high against the yen after German Finance Minister Wolfgang Schaeuble ruled out a Greek sovereign default.

The Stoxx Europe 600 Index climbed 0.6 percent as of 11:45 a.m. in London and Standard & Poor’s 500 Index futures added 0.4 percent. Japan’s currency fell 0.4 percent to 102.04 per euro after reaching 102.09, the weakest level since Oct. 8.

The size of the latest shock may be underscored this week, when China will report its economy probably grew 7.4 percent last quarter, according to the median estimate in a Bloomberg News survey. Such a pace would be the slowest in three years.

China Impact

If unchecked, the fading could deal a blow to already-weak rich nations, warn economists. Slackening Chinese demand led Alcoa Inc., the largest American aluminum producer, to last week cut its forecast for worldwide consumption of the metal by 1 percentage point. The U.S. reported a widening trade gap for August last week as diminished global demand caused exports to fall to the lowest level since February.

China, the world’s second-largest economy, alone accounts for 65 percent of seaborne iron ore demand and 40 percent of copper consumption, leaving producers such as Australia, Brazil and Chile vulnerable, Gustavo Reis, a Bank of America Merrill Lynch economist in New York, said in an Oct. 5 report.

A 1 percentage point drop in China’s growth rate often leads to a 1.5 point decline in commodity prices over a couple of quarters, threatening resource-rich nations such as Canada, while about 80 percent of its imported inputs come from Japan, South Korea and Taiwan, Reis said. Germany may also suffer from weaker demand for its capital goods.

Rebalancing

Emerging markets need to rethink export-reliant growth models and pivot to domestic drivers, Morgan Stanley analysts say. Demographics don’t help, with half the emerging world’s populations, including China’s, getting older, Morgan Stanley’s Manoj Pradhan and Patryk Drozdzik said in a Sept. 24 study.

A rebalancing may already be under way, yet the transition could mean a period of fragility. India is opening up to foreign investment, and Finance Minister Palaniappan Chidambaram plans to build on that with steps for capital markets, insurance, banking and infrastructure. Brazil is paring payroll taxes and enabling companies to build and operate roads and railways.

The debate centers on how much further emerging markets want to spur growth. While South Korea and Brazil both cut interest rates last week, Singapore joined India and China in resisting monetary stimulus as they guard against inflation and asset-price risks.

China has refrained from lowering borrowing costs since July, seeking to rein in housing costs as it prepares for a once-in-a-decade leadership change next month. The country has “relatively large room” for use of monetary and fiscal policies compared with some nations, said Yi Gang, a deputy central bank governor who came to Tokyo in lieu of Governor Zhou Xiaochuan, the official Xinhua News Agency reported.

‘Too Fast’

“Some were growing too fast and suffering inflationary pressures so they’ve put the brakes on,” said Mario Blejer, former governor of Argentina’s central bank and now vice chairman of Banco Hipotecario SA. “In a sense that’s a good thing, but they don’t want to overdo it.

Bank of Korea Governor Kim Choong Soo said there is ‘‘ample room for promoting domestic demand-driven growth, especially in Asia.” He said “further fiscal and monetary stimulus should help boost domestic demand and ultimately the world recovery.”

Requests for expansionary policies in Tokyo still ran into resistance from several emerging-market officials. The views of China were limited by its decision not to send top officials to Japan amid a spat over islands that both nations claim.

“This call by some of our colleagues that we should go ahead and increase our budget deficits to stimulate economic growth is probably unrealizable,” Russian Finance Minister Anton Siluanov said in an interview, adding that rich countries should focus on addressing their debt challenges.

Currency Wars

Refighting the so-called currency wars of 2010, Brazilian Finance Minister Guido Mantega blamed “selfish” western monetary policies for undermining economies such as his with inflationary hot money. “Brazil, for one, will take whatever measures it deems necessary to avoid the detrimental effects of these spillovers,” he said.

Mantega and Siluanov were among those to signal irritation with the U.S. for failing to ratify a 2010 deal that gave emerging markets more power at the IMF and would make China the third-largest member. Negotiations over a 2014 shift in voting rights are already subject to disagreement over how to calculate the reshuffle.

Federal Reserve Chairman Ben S. Bernanke sought to refute arguments that the Fed’s record stimulus, including a $40 billion-a-month mortgage-securities purchase program, is causing destabilizing flows to emerging-market economies. “It is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies,” he said yesterday in prepared remarks for a seminar in Tokyo.

Fischer’s Take

QE3, or the third round of quantitative easing, won plaudits from Fischer, who was Bernanke’s thesis adviser. The IMF’s former No. 2 official said tying the program to reducing unemployment “adds to the credibility” of Fed measures.

Not all data signal gloom. A Chinese release two days ago showed exports grew at the fastest pace in three months in September. Retail sales in Brazil exceeded economists’ estimates in August, and advanced for a third straight month.

“Perhaps we’re seeing a bottoming out of the slowdown,” said Guillermo Ortiz, a former governor of Mexico’s central bank and now chairman of Grupo Financiero Banorte SAB.

U.S. Treasury Secretary Timothy F. Geithner said improvements in incomes, policy and technology all indicated a “long period of growth in the emerging world on average over time that’s a significant multiple of the average of developed countries.”

Unlike the U.S. or Europe, monetary policy in the developing world still has potency and there’s scope to use it if needed, said Philip Suttle, chief economist at the Institute of International Finance.

JPMorgan Chase & Co. economists calculate the average interest across emerging markets to be 5.56 percent compared to 0.51 percent in the developed world. IMF estimates show emerging market budgets to be in deficit by an average 1.9 percent of output, about a third of the shortfall in advanced countries.

“Keep your fingers crossed,” said Suttle.