EMERGING MARKET RISK: ISSUES TO WATCH AND QUESTIONS TO ASK IN 2015
The first decade of the new century could be summed up as ‘emerging market exuberance’ as the size of emerging market economies (measured in nominal dollar terms) doubled between 2005 and 2014, with growth averaging two to three times higher than that in so-called ‘advanced economies’. Multinationals found a global manifest destiny — new markets, new consumers and low costs.
The world is much different today. According to the International Monetary Fund’s April forecast, conditions in advanced economies are expected to improve in 2015 with 2.4 percent GDP growth. The outlook for Europe in particular is brighter.
Emerging markets, on the other hand, have slowed appreciably and growth rates in 2015, at 4.3 percent, are expected to be lower than in 2014. As a result, the growth margin between advanced economies and emerging markets has narrowed appreciably – from 4.5 percent in 2012 to a forecast of 2.1 percent in 2015.
Differentiation among emerging markets is another key development. The highest growth regions in 2015 are East and South Asia, projected to grow over 6 percent. Some countries such as Russia, Brazil and South Africa are expected to significantly underperform the US and UK in 2015 and 2016.
This situation has changed what is considered a ‘growth market’, yet most company executives have not yet built this into their strategic plans and communications.
Moreover, as emerging markets struggle with slowing growth, a number of risks bear watching. In this article, we highlight three issues to watch and three questions corporate executives and directors should be asking.
Jul-Sep 2015 Issue
Longview Global Advisors