Looking at the world’s 25 largest emerging markets, ranked by GDP in PPP terms, the five fastest-growing include some usual suspects (China and India) but also some more surprising entrants – particularly Nigeria and Bangladesh. 2014 should see relatively strong growth for these five economies – albeit in some cases weaker growth than in recent years – but as ever, all face important challenges.
Real GDP Growth in Top 5 Fastest Growing Key Emerging Economies in 2014
Graph 1
Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF
China Leads World Growth
Despite its much publicised slowdown, China is expected to be the fastest growing large emerging market in 2014, with real GDP growth projected at 7.4%. Consumer expenditure should increase by 8.6% in real terms, outpacing economic growth, indicating some success in the rebalancing of the economy. Because of the sheer size of China’s consumer market, an 8.6% increase in consumer expenditure is equivalent to an additional US$290 billion (in 2013 prices); to put this into perspective this is comparable to another Sweden or another Taiwan. The savings ratio is expected to fall to 38% in 2014, down from 41% at its peak in 2010.
The key challenge for China this year is to curb credit – with rapid inflation in property and land prices – and to bring local government finances under control. Policy measures have been introduced to work towards this.
We expect to see concrete measures this year stemming from the major reforms announced at the third plenum last year.
House Price Index in China: 2013-2014
Graph 2
Source: National Statistics
Note: Data from January 2014 are forecast. Data refer to the Shanghai Second-hand House Price Index.
Nigeria in Second Place but with Serious Underlying Economic Concerns
Nigeria is, perhaps surprisingly, expected to be the second-fastest growing major emerging market this year. We expect the economy to expand by 6.6% in real terms in 2014. One of Nigeria’s chief advantages is its large current account surplus, which stood at US$11.8 billion or 4.0% of GDP in 2013.
Tighter monetary conditions and uncertainties over the flow-on effects of these on emerging markets may affect the Nigerian economy adversely this year however because Nigeria has received relatively large inflows of foreign capital. The economy also remains over-reliant on energy, and diversification is a priority – not least because of high unemployment. Conflict in the north is also a key concern.
The Philippines: ASEAN’s Star Performer
Real GDP growth in the Philippines is expected to come in at 6.5% in 2014 – and this rate is expected to be maintained in the medium term. Growth will be driven by reconstruction following Typhoon Haiyan and consumer spending, driven in part by inflows of remittances. The Philippines has a successful Business Process Outsourcing (BPO) sector, which is also a key driver of economic growth – both directly and indirectly – with job creation in this sector boosting consumer expenditure.
In the short-term, the country’s key challenges are external –the risk of a deeper slowdown in China and the global economy on the whole, and the impact of the Fed taper. In the longer term unemployment is a key challenge for the economy – the unemployment rate is expected to remain above 7% in the medium to long term.
Bangladesh in 4th Position (for Now)Real GDP growth in Bangladesh is forecast at 6.0% in 2014 making it the 4th fastest-growing economy in our ranking. The economy has benefitted from inflows of remittances, a strong performance in textile exports and government structural reforms. These reforms are having positive flow-on effects on investment and consumption. Consumer expenditure is expected to increase by 6.0% in 2014.
However, Bangladesh’s position in the ranking is the most tenuously held of all. In January, violence erupted during the general election with calls since for new elections to be held and the return of a caretaker government. The danger of an escalation in tensions between the government and the opposition is high - particularly as the dispute lengthens with no current sign of an agreement in sight. Costs are rising in the textile sector – as a result of improvements to working conditions and wages following the high profile collapse of a factory and two fires. Unrest surrounding the election is adding to these costs and may stymie growth in Bangladesh’s flagship export sector.
Exports from Bangladesh: 2008-2013
Graph 3
Source: UN
India: The Comeback King
Following a stronger end to 2013, India has come in at 5th position in the ranking with forecast real GDP growth of 5.7% this year. To put this into perspective, India was only the 13th fastest-growing of the 25 large emerging markets covered here in 2013, and 15th fastest in 2012. One major achievement has been the reduction in the current account deficit. It peaked in 2012 at 4.9% of GDP but is expected to fall back to 3.0% in 2014 - which equates to a fall of US$32.4 billion. This turnaround was achieved in part through the depreciation of the rupee, which has made exports more competitive; but also by the government’s policy to restrict gold imports and to attract savings from Indians living overseas.
Once again 2014 is an election year. The May general election could bring good or bad news for the economy – if it results in a government with a strong mandate this will be good for the economy; but on the other hand if it results in a coalition then it might be difficult to push through reforms.
India’s Current Account Deficit: 2008-2014
Graph 4
Source: Central Bank/national statistics/IMF
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