GDP growth in the second quarter of the year has been disappointing across our rapid-growth markets (RGMs), with the notable exception of China. The outlook for the next quarter is no better. What is causing this shift in events?
Uncertainty in global financial markets has heightened, leading to a marked fall in many RGM currencies, sharp rises in bond yields and underperformance in equities.
In response to these external pressures, RGMs such as Brazil, India, Indonesia and Turkey have been forced to tighten monetary policy.
The rising costs will translate into lower investment and consumption, all of which weigh on medium-term growth prospects.
We now expect growth next year in RGMs to be 4.7%. This is considerably weaker than the 5.7% forecast in our July edition. Downward revisions to Latin America, Russia and Asia drove the move.
- Weak growth and sharp currency falls add to the challenges
- High inflation and borrowing costs to weigh on investment and consumption
- Many RGMs are still vulnerable to external pressures
- Tackling medium-term challenges requires political consensus for reform and strong institutions
Rapid-growth markets may be feeling buffeted by a global storm that has long been affecting their mature market counterparts. However, they still have the power to write the next chapter of their story.
With the right policy responses to the immediate challenges they face, and a determination to continue reforming their economies, they can continue to build a future based on sustainable growth.