Why will rapid-growth markets remain rapidly growing?
Key to the recent success of rapid-growth markets are improved macroeconomic management and enhanced political stability.
Finding the growth in rapid-growth markets
There are many reasons to be optimistic about the growth potential of rapid-growth markets over the next decade:
- Catch-up potential: despite the fast growth that rapid-growth markets have seen in recent years, average living standards are still way below those in advanced economies. This suggests that there is still considerable scope for rapid-growth markets to grow strongly as they emulate advanced economies.
- Continued industrialization and urbanization: underlining the catch-up potential of rapid-growth markets, there are still massive populations in parts of Asia and Africa that are yet to move out of subsistence agriculture into the market economy.
- Strong population growth: The working age population across all rapid-growth markets is expected to increase by 268 million (9.4%) between 2010 and 2020.
- High investment and savings rates: It is not only strong labor supply growth that will drive the productive potential of rapid-growth markets higher. So too will their high rates of saving and investment. This is most marked in Asia, with China investing more than 40% of its GDP.
- Improved economic management and political stability: Key to the recent success of rapid-growth markets are improved macroeconomic management and enhanced political stability. This is most striking in the case of a country, such as Brazil, which persistently underperformed through the post-war period, experiencing repeated crises and hyperinflation.
- The avoidance of high debt: A key advantage that rapid-growth markets now have over advanced economies is that most of them have avoided the excesses of the financial bubble. As a result, typically neither households nor governments are struggling under the high debt burdens faced by most advanced economies.
- Growth of the middle class: Many rapid-growth markets have traditionally had an export-led model of growth. Their growing influence however, has led to the emergence of a substantial middle class, which is creating domestic consumer markets of critical mass.
- Competitiveness and moving up the value chain – Many rapid-growth markets have developed initially by offering a low-cost production base for manufacturing, and this is likely to remain critical to the growth of many such economies particularly Mexico and Vietnam.
- High real commodity prices: A number of the rapid-growth markets are very dependent on exports of oil and other commodities. The challenge for such economies is to avoid the so-called ‘resource curse’ and ensure healthy development of their non-resource economies as well.
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