Daily Management Review

Developing countries reached the growth limits


04/26/2018


The growth rates of developing countries may have reached their peak in this business cycle, despite the forecasts of the International Monetary Fund (IMF) and the Institute of International Finance (IIF) about acceleration in their growth to at least 2019.



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Monocletophat123
The IMF confirmed a forecast that the economic growth of developing countries will accelerate from 4.8% to 4.9% in 2018 due to the faster growth of the economies of India, Latin America, the Middle East and sub-Saharan Africa. The organization raised its forecast for 2019 to 5.1% on the background of expectations that all these regions will continue to grow in the next year. The IIF also expects the growth of emerging markets to accelerate from 4.7% to 5% in 2018, mainly due to a sharp increase in the economy of India by 7.9% and 5.1% in 2019.

Nevertheless, UBS analysts believe that the consistent growth of emerging markets began to slow in the fourth quarter of 2017: economic growth subdued from 4.1% in the third quarter of 2017 to 3.3% at the end of the year. This trend continued in the I quarter of 2018, they say. The decline was simply "disguised" by the improvement in annualized terms, says UBS strategist Bhanu Baweja. The slowdown was particularly evident in the developing countries of Asia, where the growth rate for the quarter fell from 6.6 to 5.1%. In countries where the economy began to recover - Brazil and Russia - this trend decelerated. Brazil’s inability to implement fiscal reforms in 2017 resulted in the fact that the economy is recovering too slowly, says James Donald, head of the Emerging Markets Department at Lazard Asset Management. The recovery of the Russian economy is likely to be stopped by the recent US sanctions, he warns, although economies of developing countries may still experience a small increase in 2018.

Recent studies of Capital Economics confirm the trend of slowing down emerging markets. Its experts suggest that the growth of developing countries fell to 4% in early 2018. NN Investment Partners strategists also warn that the impetus for their growth has come to naught. Analytical center of the Brookings Institution and the Financial Times agree: the momentum in the global economy has reached a peak.

Due to disruptions of some commodity economies, developing countries with a manufacturing industry could become a new driver of economic growth. However, their growth also slowed noticeably in the first quarter of this year, points out Baweja, referring to the purchasing activity index in the manufacturing industry. 

India, China, Russia and several other countries have already felt that PMI indexes have fallen over the past three months, although so far they remain above 50 points. The only major emerging markets, where the PMI index exceeds 50 points and continues to grow, are Brazil, Mexico and Singapore. In addition, the inventory turnover ratio is decreasing, although it remains positive in all developing countries. And although in value terms, exports from developing countries grew by 10-15% in annual terms over the past 15 months, it was largely due to rising oil prices. If prices do not rise, the export growth rates in value terms may be halved by the end of the year, according to UBS.

source: ft.com






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