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Resilience though growing divergence - EY - Global

The range of opportunities in rapid-growth markets is actually widening against the background of a promising growth up to 2020.

Emerging market economies are still offering good opportunities to companies and investors across most sectors. But not all regions show solid growth prospects.

Our latest Rapid-Growth Markets Forecast reports that rapid-growth markets are proving resilient in the face of the debilitating impacts of the Eurozone crisis and Middle East tensions.

Overall, we see three main trends emerging in rapid-growth markets:

  • An overall resilience of rapid-growth markets (RGMs) thanks to robust consumption
  • A growing divergence among the rapid-growth markets
  • An expanding  middle class that, in the medium term, will provide a source of global growth and trade flows

Rapid-growth market economies: robust, confident

Our latest forecast expects a significant fall in rapid-growth market growth from 6.3% in 2011 to 5.3% this year. China and Hong Kong are expected to come in at 8.2% and India at 6.1%. A moderate recovery is in prospect for 2013 with growth at 6.3% - 0.4 percentage points below that forecast in January.

Nevertheless, rapid-growth market economies are robust and business confidence is on the rise as labor market growth, rising consumption and expanding trade flows emerge as key growth drivers. However, looked at nationally and regionally, significant growth differences are opening up this year between the 3.5% foreseen for the Americas, 4.2% for emerging Europe and the Middle East and 7% for Asia.

These numbers are less robust than those of 2010 or even last year, but they look much better than the 0.5% contraction followed by 1% growth in 2013 forecast in the spring edition of the Eurozone Forecast.

Inevitably, the Eurozone sovereign debt crisis bears an important responsibility for the softening in rapidRGM growth prospects. Its most immediate impact is being felt in emerging Europe, where the region’s banking is largely owned by major Western European institutions that have tightened up on lending to protect and strengthen their capital bases.

More business opportunities and more complexity

Growth prospects, of course, have direct implications for business.

If they are good, they attract investment, stimulate innovation and promote trade. The implications of this quarterly report are that the range of opportunities in rapid-growth markets is actually widening against the background of a promising growth up to 2020.

In positioning themselves, companies may have to examine a greater number of variables than in the past, encompassing:

  • Transport and information and communication technology (ICT)infrastructures
  • Wage and other production costs
  • Trade liberalization policies
  • Currencies management
  • Technology transfers
  • Investment and manufacturing partnerships
  • Merger and acquisition opportunities
  • The quality of financial services
  • Government procurement policies

Expanding middle class populations in rapid-growth markets

Rising middle classes in Asia with increasing disposable income are markedly hungry for consumer goods. If, as our report expects, Chinese households with a disposable income of between US$30,000 and US$50,000 grow from 1.5 million in 2010 to 26 million in 2020, the opportunities for certain providers of luxury, high-end goods and services will be unparalleled elsewhere in the world.

In India, there will be a slightly less dramatic explosion of numbers from 100 million now to 150 million households, and in a lower income bracket of between US$5,000 and US$10,000.

The phenomenon extends also to Latin America. Mexican households with an annual disposable income greater than US$50,000 are expected to increase from 4.7 million in 2010 to around 7.1 million, and in Brazil from 6.2 million to around 9.4 million over the next decade.

Read on to explore the following topics:
Rapid-growth markets: key trends
Regional growth and potential vulnerabilities
Rapid-growth markets’ trade links intensify
Considerations around oil and commodity prices
Focus on Latin America


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