Emerging Focus: 2013 Outlook for Emerging Market Economies
In 2013, emerging market economies (EMEs) will continue to drive global economic growth with aggregate annual real GDP growth expected to pick up compared to 2012. However, as austerity policies are set to continue in advanced economies in 2013, the external sector in emerging economies is expected to remain weak. Therefore, the performance of these countries will largely depend on their ability to rebalance growth by turning to domestic sources of growth
- In 2013, annual real GDP growth for 25 key EMEs is projected to increase by 5.6% (fixed US$ constant terms), slightly higher than the 5.0% expected annual rise in 2012. Most of these countries have surpassed pre-crisis output levels thanks to strong monetary and fiscal policies and partly by high credit growth that are outweighing weak external demand from advanced economies;
- 2013 will not be devoid of challenges for EMEs. There is a significant risk that advanced economies could experience another downturn thanks to deepening problems in the eurozone and the impending debt crisis in the USA. As a result, EME countries will need to continue rebalancing towards domestically driven growth and investments during the year;
- Emerging Asia will continue to the lead the global recovery in 2013 as its private domestic market, government spending and low unemployment are expected to compensate for weak external demand. Most economies in the region are less vulnerable to spillover effects from advanced economies as they are more connected regionally;
- China will be the fastest growing economy within EMEs with an annual real GDP growth of 7.8% in 2013, followed by India (6.3%), Indonesia (6.2%), Kazakhstan (6.1%) and Peru (6.0%). China’s external sector faces challenges as a result of diminished global demand for exports, however, the economy has been lifted by significant fiscal and monetary stimulus provided by the government;
- Hungary is forecast to witness the weakest performance within EMEs in 2013 with an annual real GDP growth of only 0.4% followed by Romania (2.1%) and Poland (2.2%). Emerging Eastern Europe is expected to perform poorly for another year in 2013 owing to its close proximity to Western Europe and the eurozone debt crisis.
Annual Real GDP Growth in Selected EMEs: 2012 – 2013 %
Source: Euromonitor International from national statistics/ Eurostat/ OECD/ UN/ International Monetary Fund (IMF), World Economic Outlook (WEO)
Note: Data refers to forecasts.
Global Uncertainties Burden EMEs in 2013
- The unresolved eurozone debt crisis, the impending debt crisis in the USA and continued austerity measures in advanced economies will increase external sector vulnerabilities in EMEs and impact the growth potential of these economies. In 2012, total exports in EMEs are forecast to increase by 5.4% annually in US$ nominal terms, compared to the over 20.0% growth experienced in 2010 and 2011;
- As the contagion from advanced economies spread to EMEs in 2012, these countries aggressively sought alternative sources of growth and investment by lowering their dependence on advanced economies and looking inward to drive demand. Euromonitor International expects this trend to continue in 2013;
- For example, in 2012, an estimated 22.8% and 15.1% of exports from EMEs went to the EU-27 and the USA respectively, down from 26.5% and 17.4% respectively in 2007. Meanwhile intra-regional trade in emerging Asia increased from 32.1% of total exports in 2007 to 35.7% of total exports in 2012;
- The uncertainties surrounding the recovery of advanced economies are also creating sensitivity in capital flows. EMEs are strongly linked with the developed world through foreign direct investment (FDI), portfolio inflows and the banking sector. In 2011, total FDI inflows in EMEs stood at US$480 billion, lower than the peak of US$530 billion in 2008;
- Overheating risks that persisted in emerging Asia and Latin America in 2011 and 2012 are likely to recede in 2013 and inflation will only be a concern for a few EMEs like Argentina, India and Egypt. According to the IMF’s World Economic Outlook October 2012, overheating risks on the domestic front still exist for Argentina and India while Turkey is at risk on the external front.
Emerging Asia Continues to Lead Global Recovery
- EMEs in Asia are amongst the fastest growing countries and continue to contribute significantly to global economic growth owing to strong domestic demand from its growing population and rising disposable income from its expanding middle class. In 2013, emerging Asia will witness a real annual growth of 7.3% (fixed US$ constant terms) on an aggregate basis compared to a projected annual growth of 6.9% in 2012;
- China will be the fastest growing economy within EMEs with an annual real GDP growth of 7.8% in 2013, unchanged from its forecast for 2012 suggesting a “soft landing” for the economy. Fiscal and monetary stimulus provided by the government has lifted the Chinese economy but without further stimulus, growth is unlikely to accelerate. China’s export growth will continue to face uncertainties in 2013;
- Annual real GDP growth in India and Indonesia will also witness robust growth in 2013 at 6.3% and 6.2% respectively, from 4.7% and 6.2% estimated respectively in 2012 owing to their large domestic markets and low reliance on exports. India’s economy struggled in 2012, though a series of positive reforms announced later in the year are expected to boost investor confidence;
- Real economic growth in export dependent economies like Malaysia, the Philippines and Thailand will moderate to 4.5-5.0% annually in 2013 due to low global demand for exports from an above 5.0% real expansion projected in 2012.
Mixed Prospects for other EMEs
- Emerging Eastern Europe remains most vulnerable in 2013 owing to its close proximity to Western Europe and the eurozone debt crisis. Hungary will have the lowest annual real GDP growth amongst EMEs in 2013, at 0.4%, followed by Romania (2.1%) and Poland (2.2%). Hungary remains central Europe’s most indebted country due to huge amounts of government and external debt and years of low investment and weak domestic demand;
- Turkey, Europe’s largest EME, will be the fastest growing economy in Western Europe in 2013, with real GDP growth up to 4.0% from an estimated 2.8% in 2012. The government is strongly focusing on rebalancing the economy by lowering its dependence on Western Europe as a trading partner. This, combined with the central bank’s policies, helped ease pressure on the current account deficit;
- Oil exporting EMEs like Saudi Arabia and Russia will perform moderately despite the decline in oil prices in the second half of 2012, which were affected by geopolitical tensions in the Middle East. Both economies are forecast to grow by 3.2% and 4.5% annually respectively in real terms in 2013;
- After a year of low growth and high inflation in 2012, Brazil’s economy is expected to rebound strongly in 2013 with an annual real GDP growth of 4.0%, up from the 1.2% projected increase in 2012. The economy’s strong consumption boom will be supported by significant investment programmes pursued by the government as it prepares to host the 2014 FIFA World Cup and the 2016 Olympic Games;
- Growth in other commodity exporting countries in Latin America like Argentina, Chile and Peru will moderate in 2013. Spillovers from advanced economies lowered commodity prices and weighed on growth in 2012. This trend is likely to continue in 2013.
Opportunities Exist Despite Challenges
- The strong demographic profile of EMEs comprising of a young and growing workforce gives these economies a huge advantage over advanced economies and increases the long-term growth potential of EMEs. In 2012, the working age population (aged 15-64) in China alone was three times that in the EU-27;
- EMEs also have a large and expanding middle class that presents several opportunities for businesses across sectors. The aggregate annual disposable income per household in EMEs is forecast to rise by 2.9% (fixed US$ constant terms) in 2013 over the previous year compared to a 0.4% real increase in advanced economies;
- As a result, aggregate consumer expenditure in EMEs will rise by 6.4% annually in real terms (fixed US$ constant terms) in 2013 compared to 1.4% in advanced economies. EMEs hold a strong consumer market potential where marketers of a range of products from necessities like food to discretionary items like household products, communications, and education will benefit.
Total Consumer Expenditure in 25 Key EMEs and Advanced Economies: 2008 – 2013 annual % growth
Source: Euromonitor International from national statistics/Eurostat/UN/OECD
Note: (1) Data for 2012 and 2013 refers to forecasts. (2) Data is in fixed US$ constant terms.
- EMEs will lead global growth in 2013. In January 2013, the IMF emphasised that while policy actions have lowered risks and global growth is expected to see a moderate pick up during the year, downside risks remain significant;
- Given the potential of global volatility, EMEs will need to strike a balance with the fiscal and monetary policies and take pre-emptive measures against any serious downturn. These countries will need to continue “decoupling” from advanced economies by rebalancing towards domestically driven growth and investment;
- With global trade growth expected to remain sluggish in 2013, there will be a rising trend of protectionism in an attempt to drive up exports and safeguard the external sector. However, this might trigger currency wars in order to make their exports more competitive in the global market.
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