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Emerging market insights
The coming emerging market demand shock
It may not feel like it in South Africa, but a fundamental economic shift is taking place in the wider emerging market (EM) world.
We need to take ourselves out of the local negativity to see what is really taking place in EMs. Since the beginning of 2017, EMs have become the engine of global growth and the new opportunity presenting itself is that this growth can be more inclusive in nature. For almost a decade and a half from the turn of the century EMs enjoyed strong and synchronised growth. This was driven by their market opening, excess liquidity, rising foreign direct investment (FDI), booming trade, robust and rising commodity prices; not to mention confidence.
Today, this growth rate is almost unimaginable. In the two decades leading up to 2007, only 50 countries had managed to achieve an average growth rate of more than 5%.
Key takeouts from this report
- The past three years have been tough on two categories of EMs, namely those that are price-taking exporters of commodities, and those that suffer the economic cost of poor political governance. But the cycle is now turning.
- Beyond the negative news in recent years, there is now a real boom in middle-class consumption in key EMs that is creating new opportunities for employment, corporate profit and economic growth in the global economy.
- Persistent negativity has eclipsed the reality of the coming EM “demand shock”. Unlike recent shocks in the global political-economy, this is one to be welcomed for its potential to contribute to global inclusive growth and new economic opportunity.
- In essence, we have reached a turning point in the industrialisation of a number of leading EMs.
- China could lose up to 85 million jobs within the next decade or so due to rising production costs.
- As this shift in production out of China takes place, there is a prospect for forward-looking developing countries to emerge as “new Vietnams” – lesser cost destinations for manufacturing investment.
- Ethiopia is emerging as the best candidate to assume this role in Africa.
- There is no sector like manufacturing that expands value and supply chains, creates secure jobs and diffuses wealth throughout a society.
- China’s growth model is rapidly shifting from state stimulus to services and consumption.
- India’s growth remains robust with the OECD, IMF and World Bank all predicting growth to be approximately 7.5% in 2018. Growth is likely to accelerate in most economies in Asia.
- The rise of this emerging new Asian middle class will have huge implications for economic activity in both developing and developed economies.
What our experts say
“Persistent negativity has eclipsed the reality of the coming EM “demand shock”. Unlike recent shocks in the global political-economy, this is one to be welcomed for its potential to contribute to global inclusive growth and new economic opportunity.”
Call to action
Download the report to find out what is driving this ‘demand shock’.
How can Deloitte help
Deloitte’s emerging markets experts can provide further insight into emerging market trends, investment and scenarios.