Rapid-growth markets hit a temporary lull

Debt crises in developed markets have put a damper on rapid-growth markets around the world in the past 18 months — but the slowdown is temporary, an Ernst & Young report projects.

Austerity measures, high unemployment and cautious consumers in the US and the euro zone have lowered demand for products made in rapid-growth countries. As a result, economic growth rates in countries such as China, Argentina, India, Malaysia, Qatar, Thailand and Turkey have dropped several percentage points from the double and high-single digits.

In 2012, GDP is expected to grow 7.5% in China (down from 10.4% in 2010); 5.7% in India (down from 8.2% in 2010); 3.3% in Argentina (down from 9.2% in 2010); and 2.2% in Turkey (down from 9.2% in 2010).

But rising domestic demand in rapid-growth countries will help turn things around, particularly in Asia, starting next year, Alexis Karklins-Marchay, co-leader of E&Y’s Emerging Markets Center, suggests in the report.

“By 2020, the number of middle-class households in emerging countries will more than double, overtaking the US and euro zone with nearly 150 million new consumers,” Karklins-Marchay writes.

The fallout from the debt crises is affecting rapid-growth markets differently, bringing out what separates them. Countries that are big energy consumers, for example, are benefiting from the cost of oil rising less quickly because of slackening worldwide demand. But falling energy prices are bad news for oil producers such as Saudi Arabia, Nigeria and Kazakhstan.

Big Asian exporters such as China, Korea, Malaysia and Thailand, and Central and Eastern European countries such as Romania, Hungary and the Czech Republic are feeling the effects of the euro-zone crisis the most acutely.

Rapid-growth African countries seem relatively immune. Ghana, for example, is expected to generate 8.5% more GDP in 2012 than last year.

The slowdown even benefits some countries. In India and China, it allowed central banks to cool inflation and provided governments a chance to catch up on infrastructure spending for power generation capacity and water and sewage systems.

In July, Beijing was crippled by heavy flooding and in India more than half a billion people were without power in the largest electrical blackout in history.

More but different

While domestic consumer demand is fuelling these fast-growing economies, their consumers do not necessarily buy like Americans or Europeans.

The proportion of internet and social network users is higher in rapid-growth markets compared with developed markets. Also, consumers in rapid-growth markets are significantly younger and are equipping their first homes rather than replacing consumer durables.

“In Korea, a popular smartphone app enables consumers to order products from a virtual supermarket projected onto the wall of a subway station, and have them delivered at home,” the E&Y report points out.

To tap the quickly expanding consumer populations in rapid-growth countries, companies must choose where to invest and tailor their products and services to the challenges and opportunities of the specific national or regional market, according to E&Y.

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