Emerging markets prove resilient during global economic uncertainties

Rapid-growth markets such as China, India and Vietnam are proving resilient at a time when the global economy remains in a state of uncertainty.

During the first quarter, manufacturing and service sectors in emerging economies increased output for a second quarter in a row, according to HSBC. The HSBC Emerging Markets Index, an indicator derived from monthly surveys of purchasing managers, reflected China’s deteriorating export prospects and inflationary pressures in India. Still, the EMI rose to 53.4 in the first quarter from 52.4 in the fourth quarter of 2011.

“Growth prospects are holding up resiliently under the weight of negative impacts from the Eurozone’s sovereign debt crisis,” Alexis Karklins-Marchay, co-leader of Ernst & Young’s Emerging Markets Excellence Center, writes in a recent E&Y forecast for rapid-growth markets.

E&Y projects growth in emerging economies to slow to 5.3% this year from 6.3% in 2011. China and Hong Kong are expected to come in at 8.2% and India at 6.1%. Emerging European economies and the Middle East should generate 4.2% growth. Emerging economies in the Americas are expected to grow by 3.5%, and those in Asia are poised to grow 7%.

By 2013, the E&Y forecast foresees a moderate recovery to 6.3% for rapid-growth markets as a whole. Star performers are expected to be Brazil at 5%; Kazakhstan and Qatar in the Middle East at 7% each; India at 8.5%; China and Hong Kong at 8.6%; and Vietnam at 7.1%.

Inflationary pressures will merit close attention in Vietnam, India, Egypt, Turkey, Nigeria and Indonesia, according to E&Y. Also, growth has slowed markedly in Poland and the Czech Republic.

Despite these problems, E&Y foresees growth in emerging economies up to 2020, leading to:

• The development of regional hubs.

• An increase in trade between rapid-growth markets and between rapid-growth markets and advanced economies.

• An expansion of middle-class populations, particularly in China, India, Mexico and Brazil.

The increase in the middle class is expected to drive consumer demand and trade flows.

By 2020, E&Y expects the total value of trade between China and Europe to outstrip trade values between Europe and the US, and European exports to Africa and the Middle East to be about 50% larger than to the US.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.