by Jared Heng
Slackening demand, market volatility and eurozone woes are starting to squeeze rapid-growth markets (RGMs), but not to the extent of derailing robust economic performance, according to Ernst & Young.
Ernst & Young’s quarterly Rapid-growth Markets Forecast (RGMF) released on Thursday said RGMs are expected to grow collectively by 5.3 per cent this year.
This contrasts sharply with a mild recession expected in the eurozone in this year’s first half and modest growth in the US.
Rain Newton-Smith, Senior Economic Adviser to Ernst & Young’s Rapid Growth Markets Forecast, said: “Any escalation of the eurozone debt crisis would have serious short-term consequences for the rapid-growth economies. But RGMs are much more resilient than in previous decades. Government debt is low across most of these economies and improved macro management means these economies are in a much better position to use well-targeted government spending or monetary policy to offset weaker growth.”
According to the RGMF, emerging markets in Asia will record an average growth of over 6 per cent per annum over the next decade. Sub-Saharan Africa will not be far behind, with a young population and foreign direct investment inflows contributing to growth of close to 4.5 per cent per annum over the next 10 years.
While political uncertainty will hamper near-term growth in the Middle East and North Africa, the Arab Spring ‒ the wave of political uprisings in the Arab world ‒ provides an opportunity to establish structural reforms to improve growth prospects, particularly in the development of the non-oil sector, Ernst & Young said.
As a result, the region’s growth should average 4 per cent per annum, but such expansion could be stronger if more economies were successfully diversified, creating high-skill jobs for the next generation, it added.
Meanwhile, the more subdued outlook for oil and commodity prices is expected to lower the growth potential in Latin America. But Ernst & Young predicts strong infrastructure investment and education in the region should contribute to higher growth prospects.
The firm said that with RGMs set to grow much faster than the developed world in the coming years, rising economic and trade links within RGM countries will see a continued flow of foreign direct investments from Asia and Latin America to Africa and other RGMs, improving infrastructure and technology across these markets.
Despite a bullish medium-term outlook for RGMs in general, Ernst & Young expects a significant slowing in their near-term growth, far short of the buoyant recovery in 2010 following the global financial crisis.
“Given the pressures of overheating in many RGMs, this slowing in growth is welcome in some cases and is partly the result of deliberate policy tightening, although it also reflects the turbulent global financial markets,” Newton-Smith said.
