Rapid-Growth Markets Forecast: July 2013

In recent months, investment order indicators in the major economies have been relatively soft and world trade growth has been subdued. While demand in some of the advanced economies has held up reasonably well, domestic demand in some of the key rapid-growth markets (RGMs) has faltered.

We now expect a slower recovery in RGMs, with growth of 4.6% in 2013, similar to the expansion in 2012.

The main drivers of strong growth in emerging markets, however, remain intact. Over the medium term, RGMs will grow by close to 6% in 2015–16, much faster than the advanced economies.

Investors reassess risks in RGMs

  • Many RGM currencies have weakened over the past few weeks.
  • Low interest rates and strong credit growth are providing less of a boost to domestic demand growth in RGMs.

Strong medium-term prospects underpin investment flows to RGMs

  • Quantitative easing in the US, the UK and Japan has increased liquidity supply, helping to lower interest rates in RGMs and spur domestic investment.
  • A rising middle class in Asia and development of trade flows between RGMs will help underpin medium-term growth in emerging markets.

FDI flows are helping to diversify economies

  • Strong foreign direct investment (FDI) flows, easier credit access, and the growth of entrepreneurship is fueling new businesses and sectors within RGMs.
  • The increasing use of mobile phones presents new business opportunities.

Risks of a productivity slump in some RGMs could have global repercussions

  • Managing the transition toward higher consumption, and a greater role for the financial and other service sectors in China, will be difficult.
  • A weaker China has significant implications for other countries in Asia and worldwide.

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