EMERGING MARKET ECONOMIES will face a diverging growth outlook in 2015, while continuing to lead the global growth momentum.
Low fuel prices will benefit energy importing countries thanks to savings to countries and consumers and narrow current account deficits, but it will depress the revenues of commodity-exporting emerging countries.
Meanwhile, increased volatility in capital inflows and currency, and further geopolitical destabilisation in some countries/regions remain the major risks for emerging market economies.
In 2015, annual real GDP growth in 25 key emerging market economies is forecast to increase by 4.4 per cent, marginally up from 4.3 per cent in 2014. While growth is expected to pick up in some emerging countries thanks to falling oil prices and an improving United States (US) economy, fragilities in the global economy and existing weaknesses will affect other countries’ growth prospects.
Apart from global oil prices, China’s slowdown, the prospects of interest rate hikes in the US and geopolitical risks are the major factors impacting the growth of emerging market economies in 2015.
China’s slower growth will have knock on effects on commodity exporters, while a rise in interest rates in the US will have immediate impacts on some emerging countries’ current account balances and currencies.
Economic recovery and possible rises in interest rates in the US will have implications for emerging markets which are vulnerable to capital outflows. Due to a weak global economy, many emerging marketing economies, including China, Argentina, Peru and Turkey already witnessed a decline in foreign direct investment (FDI) inflows in 2013. FDI inflows to Turkey fell by 4.2 per cent in real terms in 2013, following a sharp decline of 19.6 per cent in the previous year.
Emerging market economies will account for 57.9 per cent of the total global population in 2015. The old age dependency ration – the percentage of persons older than 65 per persons aged 15 to 64 – will be 12.5 per cent in the same year, compared to 27.3 per cent for developed countries. Emerging market economies thus represent a huge consumer market, while their young and growing workforce will support long term growth prospects.
Thanks to economic growth, the middle class is expanding in emerging market economies, fuelling the demand for consumer goods and services.
In 2015, the number of households with disposable income over US$10 000 in purchasing power parity terms in all the 25 key emerging market economies will aggregate 845 million, up from 815 million in 2014. Emerging countries will continue to lead global growth in 2015, although the outlook is mixed for the major emerging economies including China, India, Russia and Brazil.
Progress on structural reforms and improvements in balance of payments and fiscal conditions are expected to enhance emerging market economies’ competitiveness. Meanwhile, increased currency volatility, the risk of a credit crisis in China and further geopolitical destabilisation in Ukraine, Russia and the Middle East will be the major risks.
The average spot price of Europe Brent crude oil stood at US$74.5 per barrel in December 2014 (the lowest level since March 2010), representing a decline of 32.8 per cent over the same period the previous year.
In 2015, changes in commodity prices will have significant implications on the growth prospects of most emerging market economies.
Euromonitor International Limited is an international market intelligence firm.
