Rapid-Growth Markets Forecast: October 2013

Manufacturing: a key sector for RGMs

  • Share

While weaker global demand has slowed growth of the manufacturing and utilities sector to less than 5% this year, we expect it to recover strongly, growing in excess of 6% in 2015–17.

Transport equipment contributes nearly 15% of manufacturing in Latin America, more than 10% in Eastern Europe and almost 10% in emerging Asia.

Last year, more than a third of gross value added (GVA) in the rapid-growth economies came from manufacturing and utilities.

The largest manufacturing sectors are:

  • Food, beverages and tobacco
  • Electronics and electrical engineering
  • Machinery and transport equipment

The primary sector, which includes agriculture and mining, remains vital. However, its share of total output across the RGMs has declined, as these markets have diversified into higher-value sectors.

RGMs: gross value added by sector, 2012

EY – RGMF: GVA by sector, 2012

Source: Oxford Economics.

The services sector already contributes almost half of the GVA in our rapid-growth markets.
This is split fairly evenly between:

  • Finance and business services
  • Distribution (including wholesale and retail trade; hotels and catering; and transport and communications)
  • Non-market services, including public administration, education, health and other public services including arts, entertainment and recreation

Over the next five years, consumer spending is expected to grow much faster in the RGMs than in the advanced economies, as the number of middle-class households expands rapidly throughout the emerging world.

Demand for services, therefore, will grow very strongly.

Perhaps due to the bulkiness of the components in heavy goods manufacturing and the associated high transport costs, trade flows in this sector tend to be quite localized.

In manufacturing sectors where transportation is easier, trade flows tend to be more globalized. This reflects strong demand from the US and Europe for these easily-packaged goods.

Transport equipment is one of the largest manufacturing sectors. It contributes nearly 15% of manufacturing in Latin America, more than 10% in Eastern Europe and almost 10% in emerging Asia.

Road transport as a proportion of the manufacturing sector

EY – RGMF: road transport

Source: Oxford Economics.

The transport sector is of growing importance for RGMs, as incomes rise and households begin to demand more consumer products.

In 2010, for the first time ever, there were more registrations of new cars in the emerging markets than there were in the advanced economies.

Over the next 10 years, the number of new cars registered will:

  • Stay roughly constant in Japan
  • Nearly double in Brazil, Russia, South Africa and Turkey
  • More than double in China, India, Indonesia and Thailand

Emerging markets: registrations of new cars

EY – RGMF: new car registrations

Source: Oxford Economics.

In addition to being an increasingly important source of demand, many of the RGMs are also key producers.

Last year, in another first, car production in the emerging markets outstripped production in Japan and the US combined.

By 2020, emerging markets will be producing more trucks than developed markets, reflecting the former’s strong manufacturing growth.

Seven of the RGMs - China, Turkey, Mexico, Thailand, Korea, Indonesia and Brazil - were ranked among the top 10 producers of motor vehicles last year. Within 10 years, India and South Africa will join the top 10.