Asia: Global growth driver once again
The Asian emerging markets have clearly weathered the worst financial and economic crisis since World War II better than many other regions. Of course Asia was also affected, but the region nonetheless managed to avoid a decline in economic output. Thanks primarily to the sound development in China and India, a 4.8% increase in regional GDP is expected for this year. Given that global output is set to fall by more than 2% during the same period, this is quite impressive.
On the back of a huge stimulus package and a splurge in lending, the Chinese economy has increasingly picked up speed during 2009. The other major Asian emerging mar-kets such as South Korea have also ended their recession in the course of this year and are growing once again. We expect the upswing to continue next year as well, bolstered by sustained stimulus from monetary and fiscal policy as well as a clear recovery in world trade. Chinese GDP is likely to grow by 8.7% in 2010; Indian GDP by 6.5%. For the entire Asian region we have penciled in growth of 6.7%.
We consider medium-term growth for the region in the 7 to 8% range to be feasible. In view of the more moderate growth trends expected in world trade, we believe that growth of over 9%, as achieved in the years before the crisis in some cases, is unrealistic. However, the Asian emerging markets may return to a higher growth path in the long term. For this to happen though, domestic demand would have to generate much more growth impetus. This is especially true for China.
Emerging markets: Economic outlook 2010
Latin America: Stability policy pays off
The Latin American emerging markets have performed significantly better thus far in the current crisis than in previous crises. This is largely due to the appreciable improvement in the macroeconomic framework, which has made the region less vulnerable overall to external shocks. Consider, for example, currency reserves. Thanks to the substantial current account surpluses of the past few years, Latin America’s currency reserves have mushroomed from just under USD 142bn in 2004 to a good USD 320bn in 2008. Investment is now actually rising in some of the markets from which investors withdrew their capital in droves in times of high risk aversion in the past: For example, Brazil recorded net foreign direct investment inflows totaling USD 24.3bn in the first ten months of this year, a whopping 27% increase on a year earlier.
Of course, the financial and economic crisis also triggered an economic slump in Latin America. Mexico, whose economy is expected to decline by 7% in 2009, was hit the hardest due to its very close economic ties with the USA. Overall, however, the region is showing signs of an economic recovery. Brazil recorded surprisingly high economic growth as early as the second quarter, thus ending a brief but savage recession in the largest economy in the region. Brazilian GDP is set to grow slightly by around 0.3% in 2009. Economic output for the region as a whole is likely to decrease by 2.3%.
We expect to see growth in Latin America of 2.9% next year, with medium-term growth likely to average approximately 3.8%.
Eastern Europe: Slowly getting back on its feet
Due to the, in some cases, hefty macroeconomic imbalances, eastern Europe was hit especially hard by the financial and economic crisis. Countries like Hungary, Latvia and Ukraine have had to request international financial assistance in order to avert a massive exacerbation of the crisis, or even state bankruptcy. One of the few positive exceptions in the region was Poland, which managed to avoid a recession entirely and is actually likely to grow by a good 1% this year.
We currently see signs of stabilization and recovery in the economic situation of numerous countries in the region. Not least the economic revival in the euro area will contribute to continued stabilization in 2010. After a slump of approximately 6.3% in 2009, eastern European growth is however still likely to be subdued in the year to come at 1.8%. The effects of the macroeconomic turmoil still lingering in some countries will continue to be felt. The Baltic countries are likely to suffer a further slight decline in 2010, after a steep drop in GDP of up to 18% in some cases this year. The Hungarian economy will likely stagnate following this year's drop of around 6.5%.
But, after this period of adjustment, the catch-up process is likely to resume, narrow-ing the gap to the industrialized nations. However, with lending growth likely to be more moderate, momentum will be weaker than before the crisis. We consider eco-nomic growth of around 4% a realistic medium-term estimate. In comparison, growth averaged over 6% for the past five years.
According to our forecasts, the Latin American emerging markets will outperform their eastern European counterparts in 2010 as well. Beginning in 2011 however, eastern Europe will grow more rapidly than Latin America, as was the case before the crisis, although the gap in growth between the two regions is likely to be substantially less pronounced than in earlier years. As the industrialized nations as a whole will continue to grow at a weaker pace than the emerging market regions, the latter will continue to gradually expand their share of global output. Based on current exchange rates, this share will be around 31% this year. In 2015 it will be a good 38%. In comparison, the share in 2000 stood at just under 22%.
Gregor Eder
tel.: 49 / 69 / 2 63 – 5 33 58
e-mail: [email protected]