Re-emerging Markets: Is The Optimism Justified?
C-suite decision makers and talent managers need to keep track of a rapidly changing, and often ambiguous, outlook. The FT reports several signs of improvement. Overall, emerging market GDP surged 6.4 per cent in January year on year, its fastest monthly rate since June 2011. The net capital outflows of recent months have slowed significantly while the purchasing managers’ indices have picked up. Shipments from China, Brazil and South Korea are all growing strongly in dollar terms this year, while average container shipping costs from East Asia to South America have soared six fold since last year. Optimists believe that US President Donald Trump will not be able to implement his protectionist measures which would stifle emerging markets growth. Some put their faith in China playing a bigger trade role in Asia. Others are displaying a new appetite for Asian debt.
However, if the short-run emerging markets story seems positive, the medium term outlook appears shakier. Much depends on rising commodity prices and China’s efforts to boost domestic demand, which has involved further inflating the housing market. Is a major emerging market correction on its way?
Longer term, India and China—forecast to be the world’s largest economies by mid century—cannot be underestimated. Martin Wolf reflects on their dramatic economic transformation of recent decades. China’s GDP per head is now 26% of US levels, while India’s is around 11%. India is now the more open to the global economy with a trade-to-GDP ratio of around 45%. Much of China’s dramatic and ongoing change is evident in its soaring wage growth. Pay has trebled in a decade. The average manufacturing wage has overtaken those in Brazil and Mexico, and is rapidly catching up with Greece and Portugal. Investors in China say that jobs will shift to lower wage cost countries, but its huge domestic market will support local manufacturers for a while yet. Moreover, China’s ageing population is likely to add further upward wage pressure. The bigger long term question, for both China and India, is whether the world economy will be able to accommodate these countries’ ongoing growth.