Emerging markets remain center stage for both the potential they offer and the challenges they pose.
A young RGM population, growing in wealth, will drive a changing pattern of world consumption
- Rapid-growth markets (RGMs) will increasingly look to their own markets to drive demand, with a growing middle class buying a wider range of consumer products and services.
- Across the RGMs, there will be nearly 200 million households with incomes in excess of US$35,000 by 2022, many more than in the US.
- Demand for health and education services is likely to expand significantly, and more skills added to the workforce.
- Spending on services such as communications, culture and recreation will grow at almost twice the pace of spending on food.
- Fast growth and urbanization can place strains infrastructure. RGMs will need to invest in green technologies and public transport and improve the environment for business.
What to watch for over the course of 2014 and beyond in RGMs
- There are increasing divergences in short-term growth in RGMs. Those in the Americas are struggling to regain momentum, while steady growth in China boosts Asia.
- With industrial production surprisingly strong in Poland and the Czech Republic, emerging Europe is gaining strength and increasingly looking to the West, particularly as Germany leads the Eurozone out of recession.
- As a whole, RGMs are set to recover over the course of this year, with growth over 5% in 2015. As the US begins its tapering of quantitative easing, and with many RGM currencies still under pressure, the risk of capital flight and a sharp slowdown has increased.
- Renewed capital flight could lead to RGM growth falling closer to 3% by 2015, with global repercussions. Growth in the US would slow below 2% and the Eurozone would stutter, growing by just 0.4% in 2015.
- Prospects appear brightest in RGMs that are able to improve the environment for business and attract investment to lift their potential growth.
- If India is able to expand and diversify credit markets, ensuring businesses have access to the finance they need, growth could rise above 8% in 2016–20, much stronger than the 6%-7% we expect now.