2015 Outlook for Emerging Market Economies
EMEs will face a diverging growth outlook in 2015, while continuing to lead the global growth momentum. Low fuel prices will benefit energy-importing countries thanks to savings to countries and consumers and narrow current account deficits, but it will depress the revenues of commodity-exporting emerging countries. Meanwhile, increased volatility in capital inflows and currency, and further geopolitical destabilisation in some countries/regions remain the major risks for EMEs.
1 In 2015, annual real GDP growth in 25 key EMEs is forecast to increase by 4.4% (fixed US$ constant terms), marginally up from 4.3% in 2014. While growth is expected to pick up in some emerging countries thanks to falling oil prices and an improving US economy, fragilities in the global economy and existing weaknesses will affect other countries' growth prospects;
2 Apart from global oil prices, China's slowdown, the prospects of interest rate hikes in the USA and geopolitical risks are the major factors impacting the growth outlook of EMEs in 2015. China's slower growth will have knock-on effects on commodity exporters, while a rise in interest rates in the USA will have immediate impacts on some emerging countries' current account balances and currencies. Turkey's current account deficit stood at 5.3% in 2014, down from 7.9% in 2013;
3 Emerging Asia will continue to lead EMEs in terms of growth since most of them will benefit from lower oil prices. For EMEs in Europe, 2015 will continue to be a turbulent year due to geopolitical crisis and disappointing growth prospects in the Eurozone. Emerging countries in the Middle East and Africa and Latin America will also see mixed growth prospects
4 China is forecast to be the fastest growing economy amongst all EMEs with an expected real GDP growth of 7.1% in 2015, followed by India (6.6%), Vietnam (5.6%), the Philippines (5.6%) and Indonesia (5.4%). India's economy is expected to see most macroeconomic improvements in 2015 with lower inflation and a reduction in its current account deficit;
5 Ukraine and Russia are projected to be the slowest growing economies within EMEs in 2014, with real GDP contraction of 4.0% and 3.8% respectively. Existing macroeconomic problems, coupled with political unrest and conflict, continue to seriously weigh on the two economies.
Factors impacting the 2015 growth outlook in EMEs
1 Cheaper oil prices will have diverging impacts on emerging markets' growth outlook in 2015. Net oil importers such as China, India, Turkey and Indonesia will benefit significantly from lower oil import bills, improved fiscal conditions and rising consumer disposable income. China is the world's second largest oil importer, with petroleum imports amounting to US$265 billion in 2014. Meanwhile, oil-producing emerging countries such as Russia, Saudi Arabia and the UAE will see a plunge in revenues;
2 China's ongoing slowdown means its demand for raw materials will continue to be subdued. This will mostly affect commodity exporters such as Brazil, Peru, Colombia, Argentina and Indonesia. In 2014, Indonesia's and Brazil's exports recorded a year-on-year drop of 2.5% and 6.1% in US$ terms respectively;
3 Economic recovery and possible rises in interest rates in the USA will have implications for emerging markets which are vulnerable to capital outflows. Due to a weak global economy, many EMEs including China, Argentina, Peru and Turkey already witnessed a decline in foreign direct investment (FDI) inflows in 2013. FDI inflows to Turkey fell by 4.2% in real terms in 2013, following a sharp decline of 19.6% in the previous year;
4 Capital outflows and a stronger US dollar will drive foreign exchange depreciations in many EMEs like South Africa, Brazil, Mexico, Colombia, the Philippines and Malaysia. As the economies of Russia, Ukraine and Argentina are expected to enter and/or continue to be in recession in 2015, their currencies could also see sharp depreciation in the short term. Russia's rubble dropped by 17.4% against the US$ in 2014;
5 Geopolitical crisis and political instability will pose downside risks for some EMEs. The Russia-Ukraine crisis and the European Union (EU)'s sanctions on Russia have affected the economic performance of not only Russia and Ukraine but also other Eastern European emerging countries. The uprising of Islamic State extremists in Syria and Iraq and political instability in Libya will adversely affect the business environment of emerging markets in the Middle East and Africa region.
Top 10 of 25 Key EMEs with Fastest Annual Real GDP Growth: 2014-2015
Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), World Economic Outlook (WEO)
Note: (1) Emerging market economies cover 25 key countries that include Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Kazakhstan, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, Romania, Russia, Saudi Arabia, South Africa, Thailand, Turkey, the UAE, Ukraine, and Vietnam.
Diverging growth prospects for EMEs
Emerging Asia will continue to lead EMEs in terms of real GDP growth, boosted by low oil prices and supportive monetary and financial conditions:
1. China is forecast to be the fastest growing economy amongst all EMEs, with real GDP growth reaching 7.1% in 2015, followed by India (6.6%), the Philippines and Vietnam (5.6% for both). China's growth will ease further from 7.3% in 2014 as the country is restructuring its economy after years of investment-fuelled growth. Constraints on credit and high levels of debt will continue to weigh on China's economy, while lower oil prices should create an opportunity for growth;
2. India will be a bright spot among EMEs if necessary reforms are undertaken, as real GDP growth is forecast to accelerate to 6.6% in 2015 from 5.4% in 2014. Lower oil prices will reduce inflationary pressures and help improve the current account deficit, while offering the Indian government a good chance to cut down its expensive fuel subsidies;
3. Malaysia's growth prospects will be affected by declining oil prices as real GDP growth is estimated to slow to 5.0% in 2015, compared to 5.7% in 2014. Meanwhile, Thailand's economy should regain its growth momentum in 2015 after a major slowdown in 2014 due to political instability.
Emerging Europe will face major challenges in 2015 due to geopolitical crisis and ongoing weak performance of the Eurozone:
1. Russia's real GDP is forecast to contract sharply by 3.8% in 2015 (down from a marginal growth of 0.5% in 2014) as the economy has been hit hard by a plunge in commodity prices, EU sanctions, higher military spending, inflation and a tumbling currency;
2. Ukraine's economy is projected to shrink by 4.0% in 2015, compared to a real contraction of 6.9% in 2014, due to long term macroeconomic problems, unrest in south eastern provinces and geopolitical conflict with Russia;
3. Poland's and Turkey's economies are expected to grow the fastest among emerging European countries, with real GDP expected to grow by 3.4% and 3.3% in 2015 respectively. Poland's strong domestic demand will help to mitigate weakening exports to Russia and Western Europe, while Turkey will benefit from cheap oil prices.
The growth outlook will also be mixed for emerging countries in Latin America and the Middle East and Africa:
1. Due to tightening monetary and fiscal policies and ongoing weak external demand, Brazil's real GDP is forecast to expand by 1.1% in 2015 after seeing no growth in 2014. Argentina's economy is projected to remain in recession in 2014 as the country struggles to meet its international debt obligations. Meanwhile, a stronger US economy should help to boost Mexico's real GDP growth in the short term;
2. Egypt's economy is expected to see better growth in 2015 on the back of improved political stability. Real GDP growth in the UAE will however slow to 1.5% in 2015 (down from 4.3% in 2014) as a result of faltering oil-fuelled growth. Declining oil prices will also seriously affect Saudi Arabia's growth prospects, as the country's real GDP is expected to contract by 0.7% in 2015.
EMEs continue to represent long-term opportunities for businesses
1. EMEs will account for 57.9% of the global total population in 2015. The old-age dependency ratio – the percentage of persons older than 65 per persons aged 15-64 – will be 12.5% in the same year, compared to 27.3% for developed countries. EMEs thus represent a huge consumer market, while their young and growing workforce will support long-term growth prospects;
2. Thanks to economic growth, the middle class is expanding rapidly in EMEs, fuelling the demand for consumer goods and services. In 2015, the number of households with annual disposable income over US$10,000 in purchasing power parity (PPP) terms in all the 25 key EMEs will aggregate 845 million, up from 815 million in 2014;
Households with an Annual Disposable Income over US$10,000 (PPP) in all EMEs: 2010-2030
Source: Euromonitor International from national statistics
Note: Data from 2015 onwards are forecasts.
1. EMEs are amongst the fastest-growing consumer markets in the world. In 2015, EMEs' aggregated consumer expenditure is forecast to grow by 4.3% year-on-year (in constant fixed US$ terms), compared to 2.2% for the developed world. China will see the fastest rise in total consumer expenditure in EMEs, at 8.3% in real terms in 2015, followed by Kazakhstan (7.8%).
1. Emerging countries will continue to lead global growth in 2015, although the outlook is mixed for the major emerging economies including China, India, Russia and Brazil. Progress on structural reforms and improvements in balance of payments and fiscal conditions are expected to enhance EMEs' competitiveness. Meanwhile, increased currency volatility, the risk of a credit crisis in China and further geopolitical destabilisation in Ukraine, Russia and the Middle East will be the major risks;
2. In 2015, changes in commodity prices will have significant implications on the growth prospects of most EMEs. The average spot price of Europe Brent crude oil stood at US$74.5 per barrel in December 2014 (the lowest level since March 2010), representing a decline of 32.8% over the same period the previous year. In 2014, the Organization of the Petroleum Exporting Countries (OPEC) announced that it would maintain the oil production level of 30.0 million barrels per day, implying that oil prices would remain soft in the short term.