A low-growth world won’t be an easy one for emerging markets, but at least the Federal Reserve will keep the water in the bath warm.

That means returns to riskier assets like those from emerging markets could do relatively well in the near term, as the Fed is forced to recalibrate interest rate policy for a stubbornly less-economically vibrant world. The longer term, with low demand from developed markets and a potentially protectionist upsurge, could be more difficult.

Stanley Fischer, Federal Reserve vice chairman, performed a delicate balancing act in a speech last week, both preparing the market for a rate increase, possibly in December after the U.S. presidential election, while also speaking frankly and not encouragingly about the productivity slowdown that lies at the heart of the phenomenon of slow growth and low inflation.

Fischer’s analysis leads to the conclusion that lower productivity, which has more or less halved from its post-World War II norms in the last decade, is not amenable to lower interest rates but may be in itself a reason they stay in a historically low range.

If developed market central banks remain trapped at very low rates, and must become more forthright about the matter, we can expect emerging markets to get a material benefit. Yield-seeking investors will continue to pile into emerging market debt, as they have this year, desperate for a bit more compensation for the privilege of lending their money. Equity investors will come flocking, too, attracted by lower valuations and less worried about a potential shock due to a rapid rise in interest rates.

All of this is quite new for emerging markets, just as it is for the rest of the world. As recently as the “taper tantrum” in 2013, emerging markets — especially those that need to attract a steady flow of ­capital — tended to be hurt quite badly when interest rates in developed markets, especially the U.S., looked poised to rise.

If we believe that U.S. and European stocks have gotten expensive due to low interest rates, then emerging markets may be next in line for the same somewhat artificial inflation.

None of this implies that all will be easy for emerging market economies. Western demand for manufactured goods that allowed China, for example, to grow will not be as strong, making the development of consumer-based domestic economies all the more important.

Still, if we have to face up to a low-growth, low-inflation future, emerging market assets will enjoy at least the first part of the journey.

 

James Saft writes for Reuters.