Resilient rapid-growth markets to fend off strain of Eurozone crisis –Ernst & Young
Rapid Growth Markets Forecast (RGMF) winter 2011 Mumbai, January 21, 2012 –– Slackening demand, turbulent and volatile markets and credit liquidity problems in Europe are beginning to squeeze rapid-growth markets (RGMs) but not to the extent of derailing robust economic performance. The RGMs are expected to grow collectively by 5.3% this year, in stark contrast to the mild recession expected in the Eurozone in H1 2012 and modest growth in the US, according to Ernst & Young’s quarterly Rapid-Growth Markets Forecast (RGMF) released today.
While growth in the RGMs will continue to be the envy of advanced economies, in the near term, they 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. As a result growth in 2012 is expected to be lower than forecast by RGMF in October. However, these markets will continue to contribute nearly half of the world’s growth over the next three years.
The slowing in growth across the RGMs reflects several factors including the Eurozone crisis which will remain the most damaging until it is resolved. The business impact of an escalation of the crisis would be particularly serious for RGM exporters who are exposed to significantly weaker demand from Europe.
RGMF also observed a reversal in portfolio flows since July as investors became increasingly risk averse. Threats to liquidity and lending by European banks with a wide global reach are particularly disquieting for RGMs. Banks are selling assets and cutting back on loans under pressure to strengthen their capital which is weakening financial flows into and within RGMs with potentially depressive impacts not only on business operations but also business investment.
The immediate impact has been currency depreciations, most notably in Brazil and India. The sharp depreciation of the Indian Rupee led to increased inflationary pressure on the economy, says the forecast.
“While growth prospects in the short-term have been dented by the turmoil in global markets, and could be further affected by the events in the euro area, growth in RGMs is set to rise about 6.5% in 2013-14, a pace of expansion that will be significantly higher than in advanced economies.”
India Outlook
According to the forecast, India is expected to grow at 6.8% in Calendar Year (CY) 2012, in comparison to the previous forecast of 8.0% as per the first RGMF released in October 2011.
Says Farokh Balsara, Partner & India Markets Leader, Ernst & Young India, "While growth in the current year has moderated, India's medium to long term growth prospects remain intact”,
According to the forecast, growth in India is expected to accelerate strongly in CY 2013 at 9.5% as the global economy recovers; boosting exports and as the impact of previous interest rate tightening wanes and investment recovers. An improvement in both domestic and external demand will feed the recovery in growth.
ENDS
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About the Rapid Growth Markets Forecast
The quarterly Ernst & Young Rapid Growth Markets Forecast is a macroeconomic forecast co-produced with Oxford Economics and based on Oxford Economics’ Global Econometric Model. It aims to fulfill the need for practical and accessible economic forecasts and insights on the development in a list of 25 rapid growth countries around the world, selected on three key criteria – they should be large, both in terms of GDF and demographics, they should be dynamic, rapidly growing countries and of strategic importance for business development. Our forecast is based on Oxford Economic's Global Econometric Model and provides analysis of the implications for corporations doing business in rapid growth markets and gives recommendations for decision-makers. Follow the development by tuning in to our quarterly webcast debate and by visiting www. ey.rapidgrowthmarket.com
