How will emerging market economies perform in 2017?
On 4 July, a Goldman Sachs executive appeared on CNBC to discuss investing in emerging markets. According to her, emerging markets may be a better investment than the U.S. despite growing concerns over higher debt levels and a stronger USD, U.S. market's may actually offer more uncertainty than emerging markets.
"Look at what's going on in the U.S. If you think about the moves in the U.S. both in the fixed income and equity markets there's a lot hinging on policy options which may or may not occur. Does tax reform going to happen? What happens to health care? What happens to infrastructure?"
With that said, we brought back our emerging markets economic outlook. Read our latest summaries for the emerging markets below.
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Latin America Economic Outlook
Although the Latin America economy is rebounding from last year’s dismal performance, the pace of the recovery is weak since commodity prices have stabilized at lower levels than previously expected and uncertainty persists about policy changes in the United States. Moreover, a number of domestic challenges are resurfacing, adding further downward pressure on growth. Next year, however, the region should benefit from higher prices for raw materials and the fruits of reforms some countries have implemented over the past two years.
Analysts polled this month by FocusEconomics expect the Latin American economy to rebound this year and expand 1.4%, which is down 0.1 percentage points from last month’s forecast. Next year, the regional economy is expected to expand a stronger 2.4%.
Read the rest of our Latin America Economic Outlook
Central America & the Caribbean Economic Outlook
FocusEconomics panelists left their overall projections for the Central American and Caribbean regional economy unchanged in June, following last month’s downgrade due to fiscal distress in several economies and lingering uncertainty linked to the U.S. trade and migration agenda. Our analysts expect GDP to expand 3.0% in both 2017 and 2018.
This month, GDP forecasts for 2017 were revised up for Puerto Rico but revised down for El Salvador, Haiti, Honduras and Trinidad and Tobago. They were left unchanged for Belize, Costa Rica, the Dominican Republic, Guatemala, Jamaica, Nicaragua and Panama.
Read the rest of our Central America Economic Outlook
Sub-Saharan Africa Economic Outlook
FocusEconomics analysts trimmed their forecasts for Sub-Saharan Africa this month and now see regional GDP expanding 2.6% in 2017, down 0.1 percentage points from last month’s estimate. While the region is seen slowly picking up from a dreadful 2016, fiscal constraints, political uncertainty and weak investor sentiment will keep the pace of recovery subdued. In 2018, growth is seen gaining pace as GDP is expected to increase 3.5%.
Read the rest of the Sub-Saharan Economic Outlook
Middle East & North Africa Economic Outlook
In June, growth prospects for MENA were left stable for the third consecutive month as risks to the economic outlook appear to be broadly balanced. The limited rise in oil prices is having a positive effect in the region. Even if it is not yet enough to allow most oil-export-driven countries to plug their massive fiscal imbalances and improve their current account balances, the mild price increase is helping alleviate liquidity stress in the domestic financial markets and enabling the economies affected to post better-than-expected budget figures. Similarly, the weaker-than-expected rise in oil prices is shoring up private consumption among oil-importing economies and reducing pressure on their external sectors. Nevertheless, despite some improvements, security risks remain high in the region, hurting investor sentiment. Moreover, macroeconomic imbalances and delays in implementing structural reforms are dampening the potential for a sustained economic recovery in the mid- to long-term.
Analysts left MENA’s 2017 GDP growth outlook unchanged at last month’s 2.4%, which would represent the weakest expansion since the height of the financial crisis in 2009. Reforms in a number of countries in the region will nevertheless start to gain traction going forward, while security risks are expected to ease. This, coupled with stronger crude production and rising oil prices, will prompt growth in the region to accelerate to 3.3% in 2018.
Read the rest of the MENA economic outlook
Central & Eastern Europe Economic Outlook
The FocusEconomics panel raised the CEE region’s economic outlook for a second consecutive publication this month. Robust growth in Q1 along with strong demand at home and abroad and more support from EU development funds should push regional GDP to expand 3.3%, above 2016’s 2.9% and a notch above last month’s forecast. Next year, the panel sees activity remaining healthy and the economy growing 3.2%.
Read the rest of the CEE economic outlook
South-Eastern Europe Economic Outlook
This month, the outlook for South-Eastern Europe’s economy was upgraded from last month’s 2.7% to 2.8%, mirroring the GDP growth figure recorded in 2016. This was the second upward revision in a row after reduced political uncertainty in Turkey had fueled last month’s upgrade. FocusEconomics panelists left their projections unchanged for next year, when they expect the economy to grow 3.0%.
Read the rest of the SEE economic outlook
CIS Countries Economic Outlook
After upgrading the region’s 2017 outlook last month, FocusEconomics panelists held their GDP forecast unchanged for the CIS economy this month. A rebound in Russian growth should fuel the region to expand 1.5% in 2017 and growth is seen rising to 2.0% in 2018.
Read the rest of the CIS economic outlook
East & South Asia Economic Outlook
Strong growth in some key major economies and healthy global demand are boosting the growth outlook for the East and South Asian economies, along with evidence that downside risks to China’s economy are not materializing. Against this backdrop, FocusEconomics Consensus Forecast panelists expect the region to expand 6.1% this year, which is up 0.1 percentage points from last month’s estimate. Next year, the ESA economy will expand at a slightly slower pace of 5.9%.
Read the rest of the ESA economic outlook
ASEAN economic outlook
FocusEconomics analysts held ASEAN’s outlook unchanged for a fourth consecutive month as upside and downside risks to the region’s prospects remain balanced. Protectionist U.S. policies or a pronounced slowdown in China are large downside risks to the region’s outlook, however, so far these have yet to materialize. Slower than expected government spending or muted reform progress could hamper the region’s prospects, while stronger than expected global growth is an upside risk. FocusEconomics analysts see GDP rising 4.8% in 2017 and 4.9% in 2018.
This month’s unchanged outlook reflects stable projections for all but four economies in the region. Malaysia, Singapore and Thailand all saw their forecasts upgraded, while Brunei was the only economy to see poorer prospects.
Myanmar will be the region’s fastest-growing economy this year, expanding 7.4%, followed by Cambodia. On the other side of the spectrum, Brunei will grow a tepid 1.1% and the more mature economy of Singapore is seen increasing 2.3%. Looking at the major players, Indonesia will lead the pack and is seen expanding 5.2%, followed by Malaysia with 4.7% growth. Thailand is seen growing a more moderate 3.4%.
Read the rest of the ASEAN economic outlook.
Understanding ASEAN: Seven things you need to know!
Southeast Asia is one of the world’s fastest-growing markets—and one of the least well known.
China remains the Goliath of emerging markets, with every fluctuation in its GDP making headlines around the globe. But investors and multinationals are increasingly turning their gaze southward to the ten dynamic markets that make up the Association of Southeast Asian Nations (ASEAN). Founded in 1967, ASEAN today encompasses Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam—economies at vastly different stages of development but all sharing immense growth potential. ASEAN is a major global hub of manufacturing and trade, as well as one of the fastest-growing consumer markets in the world. As the region seeks to deepen its ties and capture an even greater share of global trade, its economic profile is rising—and it is crucial for those outside the region to understand its complexities and contradictions. The seven insights below offer a snapshot of one of the world’s most diverse, fast-moving, and competitive regions.
1. Together, ASEAN’s ten member states form an economic powerhouse.
If ASEAN were a single country, it would already be the seventh-largest economy in the world, with a combined GDP of $2.4 trillion in 2013 (Exhibit 1). It is projected to rank as the fourth-largest economy by 2050.1
Labor-force expansion and productivity improvements drive GDP growth—and ASEAN is making impressive strides in both areas. Home to more than 600 million people, it has a larger population than the European Union or North America. ASEAN has the third-largest labor force in the world, behind China and India; its youthful population is producing a demographic dividend. Perhaps most important, almost 60 percent of total growth since 1990 has come from productivity gains, as sectors such as manufacturing, retail, telecommunications, and transportation grow more efficient.
To capitalize on these trends, however, the region must develop its human capital and workforce skills. In Indonesia and Myanmar alone, we project an undersupply of 9 million skilled and 13 million semiskilled workers by 2030.2
2. ASEAN is not a monolithic market.
ASEAN is a diverse group. Indonesia represents almost 40 percent of the region’s economic output and is a member of the G20, while Myanmar, emerging from decades of isolation, is still a frontier market working to build its institutions. GDP per capita in Singapore, for instance, is more than 30 times higher than in Laos and more than 50 times higher than in Cambodia and Myanmar; in fact, it even surpasses that of mature economies such as Canada and the United States. The standard deviation in average incomes among ASEAN countries is more than seven times that of EU member states. That diversity extends to culture, language, and religion. Indonesia, for example, is almost 90 percent Muslim, while the Philippines is more than 80 percent Roman Catholic, and Thailand is more than 95 percent Buddhist. Although ASEAN is becoming more integrated, investors should be aware of local preferences and cultural sensitivities; they cannot rely on a one-size-fits-all strategy across such widely varying markets.
3. Macroeconomic stability has provided a platform for growth.
Memories of the 1997 Asian financial crisis linger, leading many outsiders to expect that volatility comes with the territory. But the region proved to be remarkably resilient in the aftermath of the 2008 global financial crisis, and today it is in a much stronger fiscal position: government debt is under 50 percent of GDP—far lower than the 90 percent share in the United Kingdom or 105 percent in the United States.
Most of the region has held steady so far, despite concern about the effect on emerging markets of the potential end of quantitative easing by the US Federal Reserve. In fact, ASEAN has experienced much lower volatility in economic growth since 2000 than the European Union. Savings levels have also remained fairly steady since 2005, at about a third of GDP, albeit with large differences between high-saving economies, such as Brunei, Malaysia, and Singapore, and low-saving economies, such as Cambodia, Laos, and the Philippines.
4. ASEAN is a growing hub of consumer demand.
ASEAN has dramatically outpaced the rest of the world on growth in GDP per capita since the late 1970s. Income growth has remained strong since 2000, with average annual real gains of more than 5 percent. Some member nations have grown at a torrid pace: Vietnam, for example, took just 11 years (from 1995 to 2006) to double its per capita GDP from $1,300 to $2,600. Extreme poverty is rapidly receding. In 2000, 14 percent of the region’s population was below the international poverty line of $1.25 a day (calculated in purchasing-power-parity terms), but by 2013, that share had fallen to just 3 percent.
Already some 67 million households in ASEAN states are part of the “consuming class,” with incomes exceeding the level at which they can begin to make significant discretionary purchases (Exhibit 2).3 That number could almost double to 125 million households by 2025, making ASEAN a pivotal consumer market of the future. There is no typical ASEAN consumer, but some broad trends have emerged: a greater focus on leisure activities, a growing preference for modern retail formats, and increasing brand awareness (Indonesian consumers, for example, are exceptionally loyal to their favorite brands).4
Urbanization and consumer growth move in tandem, and ASEAN’s cities are booming. Today, 22 percent of ASEAN’s population lives in cities of more than 200,000 inhabitants—and these urban areas account for more than 54 percent of the region’s GDP. An additional 54 million people are expected to move to cities by 2025. Interestingly, the region’s midsize cities have outpaced its megacities in economic growth. Nearly 40 percent of ASEAN’s GDP growth through 2025 is expected to come from 142 cities with populations between 200,000 and 5 million.
ASEAN consumers are increasingly moving online, with mobile penetration of 110 percent and Internet penetration of 25 percent across the region. Its member states make up the world’s second-largest community of Facebook users, behind only the United States. But there are vast differences in adoption. Hyperconnected Singapore has the fourth-highest smartphone penetration in the world, and almost 75 percent of its population is online. By contrast, only 1 percent of Myanmar has access to the Internet. Indonesia, with the world’s fourth-largest population, is rapidly becoming a digital nation; it already has 282 million mobile subscriptions and is expected to have 100 million Internet users by 2016.
5. ASEAN is well positioned in global trade flows.
ASEAN is the fourth-largest exporting region in the world, trailing only the European Union, North America, and China/Hong Kong. It accounts for 7 percent of global exports—and as its member states have developed more sophisticated manufacturing capabilities, their exports have diversified. Vietnam specializes in textiles and apparel, while Singapore and Malaysia are leading exporters of electronics. Thailand has joined the ranks of leading vehicle and automotive-parts exporters. Other ASEAN members have built export industries around natural resources. Indonesia is the world’s largest producer and exporter of palm oil, the largest exporter of coal, and the second-largest producer of cocoa and tin. While Myanmar is just beginning to open its economy, it has large reserves of oil, gas, and precious minerals. In addition to exporting manufactured and agricultural products, the Philippines has established a thriving business-process-outsourcing industry. China, a competitor, has become a customer. In fact, it is now the most important export market for Malaysia and Singapore. But demand from the United States, Europe, and Japan continues to propel growth.5
Export-processing zones, once dominated by China, have been established across ASEAN. The Batam Free Trade Zone (Singapore–Indonesia), the Southern Regional Industrial Estate (Thailand), the Tanjung Emas Export Processing Zone (Indonesia), the Port Klang Free Zone (Malaysia), the Thilawa Special Economic Zone (Myanmar), and the Tan Thuan Export Processing Zone (Vietnam) are all expected to propel export growth.
The region sits at the crossroads of many global flows. Singapore is currently the fourth-highest-ranked country in the McKinsey Global Institute’s Connectedness Index, which tracks inflows and outflows of goods, services, finance, and people, as well as the underlying flows of data and communication that enable all types of cross-border exchanges.6 Malaysia (18th) and Thailand (36th) also rank among the top 50 most connected countries. ASEAN is well positioned to benefit from growth in all these global flows. By 2025, more than half of the world’s consuming class will live within a five-hour flight of Myanmar.
6. Intraregional trade could significantly deepen with implementation of the ASEAN Economic Community, but there are hurdles.
Some 25 percent of the region’s exports of goods go to other ASEAN partners, a share that has remained roughly constant since 2003. While this is less than half the share of intraregional trade seen in the North American Free Trade Agreement countries of Canada, Mexico, and the United States and in the European Union, the total value is climbing rapidly as the region develops stronger cross-border supply chains.
Intraregional trade in goods—along with other types of cross-border flows—is likely to increase with implementation of the ASEAN Economic Community integration plan, which aims to allow the freer movement of goods, services, skilled labor, and capital. Progress has been uneven, however. While tariffs on goods are now close to zero in many sectors among the original six member states (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand), progress on liberalization of services and investment has been slower, and nontariff barriers remain a stumbling block to freer trade.
While deeper integration among its member states remains a work in progress, ASEAN has forged free-trade agreements elsewhere with partners that include Australia, China, India, Japan, New Zealand, and South Korea. It is also party to the Regional Comprehensive Economic Partnership trade negotiations that would form a megatrading bloc comprising more than three billion people, a combined GDP of about $21 trillion, and some 30 percent of world trade.
7. ASEAN is home to many globally competitive companies.
In 2006, ASEAN was home to the headquarters of 49 companies in the Forbes Global 2000. By 2013, that number had risen to 74. ASEAN includes 227 of the world’s companies with more than $1 billion in revenues, or 3 percent of the world’s total (Exhibit 3). Singapore is a standout, ranking fifth in the world for corporate-headquarters density and first for foreign subsidiaries.7
Consistent with this growth, foreign direct investment in ASEAN has boomed, surpassing its precrisis levels. In fact, the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) attracted more foreign direct investment than China ($128 billion versus $117 billion) in 2013.8 In addition to attracting multinationals, ASEAN has become a launching pad for new companies; the region now accounts for 38 percent of Asia’s market for initial public offerings.
Despite their distinct cultures, histories, and languages, the ten member states of ASEAN share a focus on jobs and prosperity. Household purchasing power is rising, transforming the region into the next frontier of consumer growth. Maintaining the current trajectory will require enormous investment in infrastructure and human-capital development—a challenge for any emerging region but a necessary step toward ASEAN’s goal of becoming globally competitive in a wide range of industries. The ASEAN Economic Community offers an opportunity to create a seamless regional market and production base. If its implementation is successful, ASEAN could prove to be a case in which the whole actually does exceed the sum of its parts.
Economic Snapshot for ASEAN
January 23, 2018
Regional economy likely gained steam in the final quarter
According to a preliminary estimate by FocusEconomics, ASEAN expanded 4.9% year-on-year in the fourth quarter of 2018, which if confirmed would mark an uptick from Q3’s 4.7% expansion.
Flash data for Vietnam showed that growth accelerated in Q4 and was likely the fastest among the region’s major economies. The performance was driven by strong showings in the services, industry and construction sectors, as well as by robust FDI inflows and a healthy labor market.
In contrast, the more mature economy of Singapore lost some momentum in the final quarter due to sluggish growth in the service sector, even as manufacturing growth accelerated.
The rest of the region’s major economies have yet to report national accounts figures for the final quarter, although growth was likely firm. Strong domestic demand should have driven the performance, although headwinds stemming from easing momentum in China and elevated U.S.—China trade tensions seemed to weigh on the external sector.
In Indonesia, robust consumption and investment should have spurred growth, notwithstanding higher interest rates. In Thailand, growth likely bounced back from Q3’s weaker-than-expected reading amid solid private consumption, although a deadly boating accident in July last year continued to take the wind out of the tourism industry’s sails and dampened Chinese visitor numbers. In Malaysia, consumers likely benefited from rock-bottom inflation and favorable tax changes, while the Philippines should have also benefited from ebbing price pressures.
Turning to ASEAN’s smaller economies, Cambodia, Laos and Myanmar likely continued to expand solidly, thanks to strong export growth and FDI inflows. In contrast, Brunei likely endured a tough fourth quarter due to the collapse in the price of oil, the country’s lifeblood.
On the political front, border tensions between Malaysia and Singapore eased in early January after a meeting between the respective countries’ foreign ministers. Talks between the two are ongoing.
In the Philippines meanwhile, the government is yet to approve its 2019 budget due to disagreements in Congress. Given the significant role that government infrastructure spending plays in fueling growth, each day that passes without a resolution is a further blow to the economy.
See the full FocusEconomics Consensus Forecast ASEAN report
Economic fundamentals are robust, but trade war fears linger
Looking ahead, ASEAN should continue to grow at a healthy pace. Private consumption should be supported by wage gains and strong labor markets, while fixed investment ought to expand robustly thanks to infrastructure development and FDI inflows. An escalation of the trade war between the U.S. and China, tighter global financial conditions and a faster-than-expected slowdown in the Asian giant are the key downside risks to growth. GDP growth for the region is expected to come in at 4.8% in 2019, which is down 0.1 percentage points from last month’s forecast, and 4.8% again in 2020.
Brunei, Indonesia, Laos, Malaysia, the Philippines, Singapore and Thailand saw their 2019 forecasts downgraded from last month, while the region’s remaining economies saw their projections unchanged.
Our panel projects that Myanmar will be the fastest-growing economy in the region this year, with an expected expansion of 6.9%. Among the major economies in the region, Vietnam and the Philippines should record the fastest growth. Conversely, high-income Singapore is expected to record the weakest expansion at 2.5%, reflecting a moderation of growth towards potential.
INDONESIA | Growth was likely robust in Q4; government seals deal over Grasberg mine
The economy likely grew fairly strongly in the fourth quarter, bolstered by healthy consumption and fixed investment, although high-frequency indicators are mixed. The manufacturing PMI averaged slightly lower in Q4 compared to Q3 against a backdrop of swirling global trade tensions, while the country posted a record trade deficit in the period on a combination of lackluster exports and double-digit import growth. That said, import growth did ebb from the extremely high readings seen in prior quarters amid higher import tariffs. In addition, the tourist sector performed well, while the rupiah has recovered sharply since November and foreign reserves—which were depleted in Q1-Q3—increased. On the political front, in late December the government finally reached an agreement with mining company Freeport-McMoRan over the huge Grasberg copper mine, which will see the government acquire a majority stake in the mine. In exchange, Freeport should be able to continue operations until 2041.
Domestic demand should continue to drive the economy this year, with private consumption supported by a strong labor market and government consumption likely receiving a slight boost ahead of elections in April. However, tighter monetary policy, delays to public infrastructure projects and cooling Chinese momentum could drag on the performance. A possible resurgence of U.S.-China trade tensions poses a downside risk to the outlook. FocusEconomics panelists see GDP expanding 5.1% in 2019, down 0.1 percentage points from last month’s forecast, and 5.1% again in 2020.
See the full FocusEconomics Consensus Forecast ASEAN report
THAILAND | Private consumption should have supported growth in the fourth quarter
Following a moderation in the pace of growth in the third quarter of 2018, the economy should have accelerated in the final quarter on the back of rising private consumption. Indeed, in October–November, annual private consumption growth remained broadly unchanged from the multi-year high averaged in the second quarter. In less positive news, however, the trade balance likely fell into the red in the fourth quarter on weakening export growth amid global trade tensions and robust import growth reflective of firming domestic demand. Moreover, business confidence worsened in December, falling into pessimistic territory. Meanwhile, in the political arena, scheduled general elections were once again delayed—this time from 24 February to mid-March, due to supposed administrative difficulties. This impelled the first protesters to take to the streets since the military government outlawed such demonstrations following the 2014 coup d’état.
Although economic growth is expected to moderate somewhat this year, it should nonetheless remain robust. Growth in fixed investment and public consumption is likely to pick up pace, while private consumption growth should remain solid. A possible flare up in the U.S.-China trade spat following the end to the temporary truce would dim prospects, while rising tensions leading up to the general election present a further downside risk. Our panel projects economic growth of 3.7% in 2019, which is down 0.1 percentage points from last month’s forecast, and 3.5% in 2020.
MALAYSIA | Indicators for Q4 are mixed; government announces measures for low-income households
Recent economic data has been largely underwhelming, even though retail sales continued growing at a robust pace in October and November as consumers benefited from low inflation. Export growth came to a virtual standstill in November on a sharp contraction in shipments of palm oil and palm oil-based products, offsetting a jump in foreign demand for refined petroleum products. Meanwhile, import growth eased on softer demand for consumption goods. Furthermore, output in the manufacturing sector weakened in November, which lead industrial production growth to soften, while in December operating conditions in the manufacturing sector worsened at the sharpest pace since the PMI survey began over six years ago. Taken together, this suggests that the manufacturing sector ended the year on a weak footing. On the political front, the government introduced measures at the start of the year, including cash handouts and free health insurance, in an effort to support low-income earners and reduce income inequality.
The economy should continue growing at a robust pace this year owing to firm domestic demand. However, while fixed investment growth is expected to pick up, private consumption will likely moderate after its stellar performance in 2018. Lingering global trade tensions and financial-market volatility are the main downside risks to the outlook. FocusEconomics Consensus Forecast panelists expect the economy to grow 4.5% in 2019, which is down 0.1 percentage points from last month’s forecast, and 4.5% again in 2020.
MONETARY SECTOR | Inflation declines in December
A preliminary estimate by FocusEconomics suggested regional inflation fell from 2.6% in November to 2.3% in December amid a plunge in global oil prices. Inflation dimmed in Indonesia, Myanmar, the Philippines and Thailand, and was unchanged in Vietnam. December inflation readings are still outstanding for the region’s remaining economies. On the monetary policy front, Thailand’s Central Bank raised rates for the first time in seven years in December, with the bank judging that the economy was strong enough to absorb the withdrawal of some monetary stimulus.
Going forward, regional inflation should remain moderate, dampened by the recent fall in global oil prices. Our panelists expect regional inflation to average 2.9% in 2019, down 0.1 percentage points from last month’s forecast, and 3.0% in 2020.
See the full FocusEconomics Consensus Forecast ASEAN report
Ref:https://www.focus-economics.com/blog/emerging-markets-economic-outlook-2017-2018
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