The Struggles of Non-Asian Emerging Markets

With economic growth in the developed world remaining subdued (outside of the United States, Britain and a handful of smaller developed economies), and with China’s economy in the midst of an ongoing slowdown, the global economy is desperately searching for new engines of growth.  Just a few years ago, it was the next tier of emerging markets (those ranging in size from India at the top end to Argentina and Poland on the bottom end) that were expected to emerge as a new and vital component of global economic growth.  However, apart from Asia’s larger emerging markets, growth has been anemic at best in nearly all of these second tier emerging markets and this has been a key factor in the sluggish growth for the global economy in recent years. 

The world’s emerging markets can be broken into four distinct groups.  One group, Asia’s emerging markets, has continued to perform relatively well in recent years, despite the turmoil facing the global economy.  Over the past five years, Asian emerging markets have grown by 7.4% per year, more than double the rate of global economic growth.  Another group of emerging markets that has exceeded global economic growth rates are those found in the Middle East and Africa, where GDP growth has averaged 4.5% over the past five years and has been much higher in the region’s more stable countries.  The two other main emerging regions, Latin America and Central and East Europe, have been much more disappointing.  In Latin America, GDP growth rates have averaged just 3.5% over the past five years and slowed to little more than 1.0% last year.  In Central and East Europe, GDP growth rates have been even lower at just 3.3% over the past five years and have faltered in recent months due to the crisis in Ukraine and Russia.

Looking ahead, this disparity in growth by region is forecast to remain in place in the emerging world.  In Asian emerging markets, growth rates are forecast to average 6.5% between 2015 and 2019, as domestic demand in India and Southeast Asia helps to offset the gradual slowing of economic growth in China.  In the Middle East and Africa, economic growth rates will average 5.0% over the next five years, as growth in Sub-Saharan Africa remains strong and helps to offset the decline in growth in key oil producing countries over the near-term.  In contrast, Latin America’s struggles will continue in the coming years, with GDP growth averaging just 2.7% over the next five years as the region’s economic competitiveness continues to lag behind that of most emerging Asian economies.  Finally, Central and East Europe’s economic growth rates will average just 2.5% over the next five years as Russia struggles to revive its economy and as Central Europe’s export-driven economies are held down by weak demand in West Europe.

Altogether, there will be three key pillars of economic growth for the global economy over the remainder of this decade.  First, the United States economy will outgrow nearly all other developed economies as consumer spending growth surges in the US, enabling the US economy to grow by 3.1% per year over the next five years.  Second, China, despite lower rates of economic growth, will remain a key driver of growth as its economy rebalances into one that is increasingly driven by domestic spending.  Finally, Asia’s other large emerging markets, particularly Southeast Asia and India, will be the third pillar of growth for the global economy in the coming years, as these countries with a combined population of nearly two billion people expand their export-oriented industries and develop their domestic markets thanks to a rapidly growing middle class.  In fact, it is these Asian emerging markets that offer many of the greatest growth opportunities for exporters and investors in both the near-term and the long-term.