Emerging markets demand shock seen spurring inclusive economic growth
Since the beginning of 2017, Emerging Markets (EM) have become the engine of global growth and New-York based multinational professional firm, Deloitte, contends that the new opportunity presenting itself is that this growth can be more inclusive in nature.
An emerging market economy describes a nation that is progressing toward becoming more advanced, usually by means of rapid growth and industrialization. Examples of EMs include South-Africa, Brazil, Russia, Turkey, Mexico, UAE, Korea etc. Nigeria is a frontier market.
For almost a decade and a half from the turn of the century, emerging markets enjoyed strong and synchronised growth, driven by their market opening, excess liquidity, rising foreign direct investment (FDI), booming trade, robust and rising commodity prices; as well confidence.
“Beyond the negative news in recent years, there is now a real boom in middle-class consumption in key emerging markets that is creating new opportunities for employment, corporate profit and economic growth in the global economy,” a report authored by Martyn Davies, Managing Director of Emerging Markets & Africa at Deloitte, and Yuwa Hedrick-Wong, chief economist, Mastercard Center for Inclusive Growth, noted.
“Persistent negativity has eclipsed the reality of the coming emerging market demand shock,” according to Davies and Wong, and “unlike recent shocks in the global political-economy, this is one to be welcomed for its potential to contribute to global inclusive growth and new economic opportunity.”
In the two decades leading up to 2007, only 50 emerging market countries managed to achieve an average growth rate of more than 5 percent.
This supercharged and abnormal growth trajectory was disrupted in 2008 and came to a rapid end in 2013 when the United States (US) Federal Reserve began rolling back its QE-stimulus and when China’s own resource-intensive infrastructure spend stimulus in response to the “Great Recession” was largely exhausted.
The golden growth decade from around the turn of the millennium for emerging markets came to an abrupt end.
The past three years have been tough on two categories of emerging markets, namely those that are price-taking exporters of commodities, and those that suffer the economic cost of poor political governance. But the cycle is now turning.
Beyond the negative news in recent years, there is now a real boom in middle-class consumption in key EMs that is creating new opportunities for employment, corporate profit and economic growth in the global economy.
Over the course of the next decade, Deloitte projects that a sizeable increase in middle class spending power emanating from EMs will become visible, which will equate to one-and-a-half times the size of the entire existing population of the US.
“We have reached a turning point in the industrialisation of a number of leading emerging markets,” Davies noted.
“China could lose up to 85 million jobs within the next decade or so due to rising production costs.
“As this shift in production out of China takes place, there is a prospect for forward-looking developing countries to emerge as “new Vietnams” – lesser cost destinations for manufacturing investment.
“Ethiopia is emerging as the best candidate to assume this role in Africa,” the report stated.
There is no sector like manufacturing that expands value and supply chains, creates secure jobs and diffuses wealth throughout a society.
China’s growth model is rapidly shifting from state stimulus to services and consumption.
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