Panel
How to Sustain Strong Growth in Emerging and Frontier Markets
- Emerging markets are projected to deliver 4% growth in 2016, accounting for approximately 70% of global economic expansion, contrasting with 1.7% for advanced economies, though the path forward may involve a slower transition to maturity with risks of a "middle-income trap" for nations like Brazil, Hungary, and Mexico.
- Capital outflows are anticipated to persist as developed economy investors retreat due to even modest prospects of U.S. rate hikes, necessitating an opportunistic strategy that accounts for country-specific risks such as policy gridlock, domestic political instability, and execution challenges regarding investor rights and capital returns.
- The outlook for commodity-dependent economies involves a transient yet prolonged oil price decline driven by supply over-supply, with prices expected to find a long-term equilibrium that precludes a return to $100 in the near future while forcing a strategic shift toward diversification in technology, agriculture, and human capital.
- China faces a multi-year to multi-decade structural transition from a capital-intensive export model to domestic demand-led growth, with potential hurdles including leverage issues and structural problems that could mirror the prolonged recovery timelines seen in Japan.
- Africa's growth trajectory relies on resolving power deficits through a private-sector-led "gas-to-power revolution" to support manufacturing, while simultaneously benefiting from China's shift toward energy efficiency and services, provided the continent can navigate questions regarding its continued reliance on the commodity cycle.
- Brazil's political and economic deterioration is expected to stabilize following recent disruptions, with a transition process anticipated to strengthen fiscal responsibility laws and enable better governability under Vice President Temer, despite lingering concerns regarding corruption and the pace of reform.
- Diversification strategies are expected to drive future growth, with countries like Mexico positioned to rapidly transition away from commodities due to strong manufacturing sectors and proximity to the U.S., while governments increasingly promote women's economic participation as a core pillar of development.
- The potential for gender equality in the economy is significant, with research indicating that equal participation could add $28 trillion globally and $12 trillion specifically if women in Africa and South America reached regional best-practice levels, creating pressure on hierarchical governments to adapt to new expectations from an educated middle class with greater access to the internet.
- Legal and institutional frameworks in emerging markets remain uneven, characterized by a "mixed bag" of rule of law and judiciary independence, though specific reforms in Mexico are expected to boost potential GDP and Brazil's impeachment process may demonstrate judicial independence to aid fiscal stabilization.
- Specific national transitions include proper democratic processes in Ghana, temporary constitutional changes in Rwanda to facilitate generational shifts, consistent progress in Nigeria's power sector privatization, and energy reforms in Mexico that aim to boost the economy despite the timing coinciding with an oil price crash.