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Rapid-growth markets: bullish despite Eurozone crisisRGM highlights

Rapid-growth markets will continue to lead global growth, though strains in the Eurozone will be felt across RGMs.

  • The top 25 ‘rapid-growth markets’ or RGMs will continue to contribute nearly half of the world’s growth over the next three years. Emerging Asia, with its rising middle class, will lead the way, while strong commodity prices will underpin prospects in Africa and the Middle East. Latin America is set to diversify its economies away from commodities, which have driven much of their strong growth over the past decade.

  • Foreign Direct Investment (FDI) inflows are an important driver of growth in RGMs and appear to have held up reasonably well in 2011. But with near-term prospects in the advanced economies having weakened, particularly in the euro area, RGMs will need to look to resources within their own economies to drive growth, including fostering entrepreneurship.

  • With RGMs set to grow much faster than the developed world in the coming years, rising economic and trade links within RGM countries will see a continued flow of FDI from Asia and Latin America to Africa and other RGMs, improving infrastructure and technology across these markets.

  • In the near term, RGMs are showing the strains from the falloff in demand from the Eurozone, as well as the buffeting to financial markets and business confidence over the past few months. Growth in RGMs is set to slow to 5.3% in 2012, 0.6 percentage point (pp) weaker than we were expecting in October, and a significant cooling in growth from the 6.1% we expect for 2011.

  • Linkages within the global economy have strengthened and the banking system is amplifying the effects of the European sovereign debt crisis. Any escalation of the debt crisis would have serious short-term consequences for the rapid-growth economies. Some RGMs are also still grappling with high inflation, while the risks of a hard landing in China have increased.

  • But RGMs are much more resilient than in previous decades. Government debt is low across most of these economies. Improved macro management means these economies are in a much better position to use well-targeted government spending or monetary policy to offset weaker growth.

  • Strong growth in RGMs has also contributed to rising inflation and high commodity prices across the globe. RGMs are much more dependent on oil and other commodities, but they have the opportunity to adopt green technologies and improve their energy efficiency.

  • Sub-Saharan Africa is set to hold its position as the second-fastest growing region, with growth close to 4.5% p.a. over the next decade. This period of growth is almost unprecedented for Africa, which, in the past, has been beset by political instability, commodity price volatility and low levels of investment.

  • The Arab Spring and greater democracy provide an opportunity to improve economic freedom, the ease of doing business and standards of living in the Middle East and North Africa (MENA) region. But in the near term, political uncertainty will hamper growth. Strong labor force growth over the medium term increases economic potential but also underlines the need to diversify economies in the region.

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