How to predict future growth in emerging markets (EM)? This is a million dollar question for investors and policymakers. Dozens of crystal-ball indices have sprung up but most of them are pretty poor when it comes to making predictions.
So the latest measure, assembled by a group at Boston’s MIT and dubbed ‘economic complexity’, is of interest. It looks beyond the traditional measure of ‘economic diversity’, which has proved useful to economists because countries that export a diverse range of products tend to be better equipped to ride the roller coaster of global demand than those that produce just a few.
The new measure devised by the MIT team also considers the rarity of exported products, judged by the number of other countries that also export them. Including this factor alongside diversity of exports, the measure predicts that countries that export a wider variety of goods that are in relatively scarce supply stand to outperform those countries that export a narrow repertoire of goods in competition with other entrenched producers. Read more
By Christopher Garman and Alexander Kliment of Eurasia Group
With the US and Europe mired in economic uncertainty, investors have turned to the emerging markets as a source of higher growth and richer returns. But EMs face new economic and political challenges of their own that will cause them to diverge from one another in the coming years. Investors who fail to anticipate this divergence will underestimate risks in some countries and miss opportunities in others. Read more
It is hardly surprising to see mixed economic views of a country or region. But these days, Asia has become a forecasters’ chop-suey of tasty and unpalatable tidbits.
While it boasts growing internal markets, strong capital inflows and still-impressive annual growth among some economies, the region remains vulnerable to global slowdowns, the whims of western central banks, natural disasters and inadequate regional co-operation. Among the growing stream of mixed messages on the region’s trajectory came the United Nations Economic and Social commission for Asia and the Pacific, launched on Friday in Bangkok. Read more
As many emerging market investors have found, GDP growth doesn’t easily translate into stock market appreciation. In fact, when it comes to investment decisions, macroeconomic factors often don’t even come into it.
Reyl Asset Management, based in Geneva, has an EM equity fund that is ahead of the MSCI EM index by around 40 percentage points since its July 2009 launch. Instead of worrying about the latest IMF economic outlook, the fund starts from company fundamentals and pretty much ignores macroeconomics. Read more
The world’s becoming a more dangerous place, including for emerging markets. That’s the view of the International Monetary Fund in its latest quarterly reports on the global economy and financial stability.
Economic growth prospects have slowed while “risks to financial stability have increased” since the Fund’s last pronouncements. For EMs this means: “Emerging markets have not escaped contagion, and are also dealing with home-grown vulnerabilities. Emerging markets are facing extraordinary uncertainty about external conditions impinging on their economic performance.”
The message could hardly be clearer. Read more
The deep summer lull of the markets has come early this year as uncertainty reigns and the global economy continues its shuddering slowdown. Bank of England governor Mervyn King said on Thursday night that economic conditions as seen from the UK had further deteriorated markedly in just the past four weeks.
But while he and others – such as BlackRock’s Peter Fisher – debate the usefulness of further monetary easing in the west to chivvy things along, Frederic Neumann at HSBC reckons that in emerging Asia, it is fiscal firepower that provides the best defence – unless that is you are in India or perhaps Malaysia. Read more
India’s headline inflation fell to 6.55 per cent in the month of January, down from 7.47 per cent in December, to a 26-month low, according to data released Tuesday.
This was widely seen as good news for the economy, but offered little clarity on whether the country’s conservative central bank will begin cutting interest rates, which have been blamed for faltering growth. Read more
Talking up your home market might seem like an obvious trap for analysts to fall into – but not, apparently, if you are Turkish.
Is this because Turks are natural bears – or is there something about the economy that is hard to predict? Read more
By Péter Oszkó, former finance minister of Hungary
Viktor Orbán, Hungary’s prime minister, appeared unusually flexible and conciliatory in the European Parliament last week.
But, true to form, he still came up with some well-worn excuses for his government’s performance since taking office. His opponents exposed a few, but missed others – a number of which are demonstrably false. Read more
The title says it all really: Fragile West, Resilient East.
Standard Chartered has released a 2012 look-ahead, and the message is clear – next year will see a two-speed global economy. Just don’t call it decoupling. Read more
The Czech economy contracted in the third quarter, falling by 0.1 per cent compared to the second as all elements of demand slowed, according to the central bank. This was the Republic’s first contraction since 2009. A recession, technically two consecutive quarters of GDP contraction, could be just around the corner.
Beyondbrics has taken a look at how its neighbours are faring – and how much they all depend on exports to the EU. The prognosis is not great. Read more
“Give me a one-handed economist!” President Truman used to ask. But look around the world at the moment, and it is divided between economists offering the kind of “on the one hand, on the other hand” advice that so exasperated Truman.
Brazil’s central bank clearly did not feel sitting on the fence was an option. It has just delivered a surprise 50 basis point cut. Financial markets’ parsing of this unexpected move is that Brazil believes growth rather than inflation is its biggest concern. This has prompted economists at HSBC to wonder who might be next. “Will everyone now go Brazilian?” it asks. Read more
Is Malaysia set for sustained economic growth this year, or exposed to serious potential problems if wobbles in the West turn into another slowdown? It depends who you ask.
The central bank is in no doubt that growth will continue, in spite of a fall in the annual pace of growth from 4.9 per cent in the first quarter to 4 per cent in the second. Read more
Nomura’s Ann Wyman is probably the first economist to clip her economic growth forecasts for the Gulf states since Standard & Poor’s downgrade of the US lowered expectations for global growth and impacted future oil prices.
It doesn’t look great – growth forecasts have been cut across the Middle East board. Should this be a cause for concern for investors? Read more
With crushing inflation top of its to-do list, Uruguay’s central bank hiked its benchmark interest rate by 50 basis points to 8 per cent as expected on Thursday, after a 100 point rise last month.
Mario Bergara, the central bank president, told Dow Jones this week that “people have seen clear signs that the central bank and government are really committed to fighting inflation”. Prices accelerated 8.53 per cent year-on-year in May, sharply outside the 4 to 6 per cent inflation target for the 12 months to June 2012. Inflation in 2010 was nearly 7 per cent. Read more
Putting aside Jordan’s fiscal problems, simmering political tensions, significant unemployment, and need to import energy, the small monarchy’s debt might actually be a pretty good bet.
So says Exotix, the frontier markets specialists, who recently initiated a buy on Jordanian debt — even as other analysts worry that fall-out from the Arab spring has put the nation on a dangerous long-term trajectory. Read more
Annual inflation has hit 20 per cent and rising, the trade deficit is widening and the first signs of financial distress are appearing in the real estate sector. But the worst of Vietnam’s latest bout of macro-economic instability is behind it, according to the World Bank.
At a briefing in Hanoi on Thursday, Deepak Mishra, the World Bank’s lead economist in Vietnam, argued that the country was now “on a declining path of instability”. Read more
Latin America has come an unimaginably long way in the past 20 years, leaving its past of coups, revolutions and economic boom-and-bust firmly behind it.
Now, with prices for commodities fuelling strong economic growth, Luis Alberto Moreno, president of the Inter-American Development Bank sees the region standing on the threshold of a historic opportunity. Read more