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ANALYSIS

Emerging markets growth to drive ‘super-cycle’

London, November 11, 2013

As economies across Asia, Africa and Latin America transform themselves on the back of a growing population, an expanding middle class and rapid urbanisation, the share of emerging market economies could rise to 63 per cent of world GDP by 2030, from 38 per cent today, according to a ‘super-cycle’ report released by Standard Chartered Bank.

The increasing size of these faster-growing countries is a key driver of the super-cycle, the report said.

Three years ago, the bank's super-cycle report said that the world is in the midst of a third economic “super-cycle”, comparable with the periods 1870-1913 and 1946-73, which also saw unusually rapid world economic development.

The latest report argues that the global economic super-cycle remains largely intact while Standard Chartered forecasts an average world growth of 3.5 per cent for the 2000-2030 period; well above the 3 per cent rate in the prior 20 years, helped by an expected pick-up in global expansion over the rest of this decade.

The bank expects China to lead the way on reform; enabling its economy to deliver an average 7 per cent growth between 2013 and 2020 and with rebalancing the structure of its economy already underway for more sustained growth, 5.3 per cent for 2021 to 2030.

Meanwhile, world trade could quadruple in value to $75 trillion over this period, supported by new regional and bilateral trade agreements and the effects of globalisation and the internet which are encouraging the trade of services as well as goods.

The 2010 report defined the super-cycle as “a period of historically high global growth, lasting a generation or more, driven by the opening up of new markets, increasing trade, and high rates of investment, urbanisation and technological innovation.”

Although scepticism has risen in recent years as a result of a slowdown in some major emerging economies and also due to the severity of the euro-area crisis, the new report suggests that a modest set of reforms could trigger a growth revival in several large emerging economies, including China, India, Indonesia, Nigeria and Brazil.

The growing scale of the emerging economies is key to providing momentum to world growth. For example, economies with growth rates exceeding 4 per cent - primarily consisting of emerging economies - now account for 37 per cent of the world GDP, up from 20 per cent in 1980. Their share is set to reach 56 per cent by 2030, according to the revised forecasts. Asia (excluding Japan) is likely to account for two-fifths of global GDP by 2030.

The report also argues that:

•    70 per cent of global economic growth between now and 2030 will come from emerging economies;

•    China could become the world’s largest economy in 2022 (against 2020 previously forecast), surpassing the US economy, but its per-capita income would still be less than one-third that of the US, implying significant scope for further growth;

•    South-south trade (or trade between emerging economies) is likely to account for 40 per cent of world trade in 2030, up from 18 per cent today;

•    Most of the 1.1bn population increase by 2030 will be in emerging markets, led by economies in South Asia and Africa, providing a sustained driver for economic growth.

Meanwhile, many developed economies are healing from the 2008-09 financial crisis, the report pointed out.

According to the revised estimates, the US economy has the strongest momentum in the developed world, with private sector balance sheets largely fixed. The world’s largest economy is estimated to grow at an average 2.8 per cent from 2013 to 2020 and 2.5 per cent in the following decade.

 “Recent pessimism about emerging markets is overdone. Concerns over the middle-income trap, excessive Asian leverage, ‘broken’ growth models and rising US interest rates appear exaggerated,” said John Calverley, global head of Macroeconomic Research.

“While we have lowered our long-term forecasts for China, India and Europe, the case for an emerging markets-led super-cycle still holds. Successful reforms will be critical for these economies to realise their catch-up potential,” he added. – TradeArabia News Service




Tags: Standard Chartered | Emerging economies | Super Cycle |

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