Emerging Markets are not Shorthand for Doom or Boon
It’s dangerous to group all emerging markets into one convenient basket, even within a region their prospects vary dramatically. Not all are suffering from a slump, but equally not all are dynamic, fast-growing economies. In a time of heightened geopolitical tensions, and with risks to the global economy seeming to increase on a daily basis, the devil is in the detail.
Bright stars include smaller emerging markets such as Turkmenistan, Laos, Rwanda and Cambodia. India is also seeing something of a turnaround with growth expected to come in at 5.4% in 2014 and 6.7% in 2015 supported by an upturn in business confidence following the general election, lower commodity prices and policy reform. Bangladesh and Nigeria are also expected to put in strong performances.
Real GDP Growth in Selected Emerging Markets: 2014-2030
Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF
Current challenges notwithstanding, 68 out of the 140 emerging and developing economies for which we have data are expected to see their economies more than double in size between 2014 and 2030. Notable underperformers include Ukraine, Russia and Iran.
Favourable demographics are another strength of many – but not all – emerging markets. 95% of global population growth between 2014 and 2030 stems from emerging and developing economies. Once again India shines through – between 2014 and 2030 India will add a further 247 million to its population – equivalent to 20% of the increase in global population and four times as many as developed economies taken as a whole. Of course strong population growth is only a boon if jobs can be created to accommodate the extra people in the labour force.
Some emerging and developing economies are seeing their population growth stagnate or even decline and some are ageing rapidly. The downsizers are overwhelmingly in Eastern Europe with Ukraine and Romania expected to see the largest falls in absolute terms. The fastest-ageing populations are dominated by Middle Eastern countries, with the 5 fastest-ageing (measured in terms of the increase in the median age) in that region, with the UAE topping the list.
Fastest-Ageing Emerging and Developing Populations: 2014-2030
Source: Euromonitor International from national statistics/UN
Consumer expenditure in emerging and developing countries will increase by a combined US$1,416 billion between 2013 and 2015 (in 2013 prices). 43 of these countries are on an upwards trajectory – seeing stronger growth in consumer expenditure in 2014 than in 2013, before seeing growth accelerate again in 2015. Many are small economies but India, Bangladesh, Mexico and Vietnam all number amongst those seeing the strongest gains.
Real Growth in Consumer Expenditure in Selected Emerging Markets: 2013-2015
Source: Euromonitor International from national statistics/UN/OECD
Looking at future growth in the longer term, the other end of the spectrum is dominated by small Latin American economies including El Salvador, Trinidad and Tobago and Puerto Rico, which are expected to see the lowest rates of growth in consumer expenditure between 2014 and 2030. Venezuela is the largest emerging market expected to put in a dismal performance, with real growth averaging just 0.8% per annum between 2014 and 2030, due to a poor economic performance stemming from weak macroeconomic policies, rampant inflation and an over-reliance on oil as a driver of economic growth.
Finally a key driver of emerging market growth has been an increase in the middle classes, which in turn has driven consumer expenditure. In the 55 emerging and developing countries for which we have data, there will be an increase of 548 million households earning more than US$10,000 (in 2013 prices) between 2014 and 2030 and a corresponding increase of 332 million households with an income over US$25,000 (in 2013 prices). TheUS$25,000+ households will more than double in the same period in 32 of our 55 countries. Key “winners” include China, India and Indonesia with the Philippines also putting in an impressive performance. The weakest performers are dominated by Middle Eastern economies including UAE, Bahrain and Qatar.
The rate of growth of a middle class income varies sharply across emerging and developing economies. Many Central Asian economies in particular are seeing strong growth – namely Turkmenistan, Azerbaijan, Uzbekistan and Kazakhstan. At the other end of the spectrum, middle income households in Venezuela, Iran and Pakistan are expected to see their incomes stagnate with growth rates below those in France, Germany and the UK.
Decile 5 Disposable Household Incomes in Emerging and Developing Economies: The 10 Fastest- and Slowest-Growing 2014-2030
Source: Euromonitor International from national statistics
Note: Data are in constant 2013 prices
Poised for strong growth?
With global risks increasing, a deep understanding of the economic and demographic drivers of growth is crucial. Strong fundamentals should insulate some emerging markets from increasing turbulence, and in the long-term many markets are still poised for strong growth. However, as with all things in life, generalisation should be avoided. Not all emerging and developing economies are winners and for some, unlocking their potential remains a major challenge.