With the New Year on the horizon, it’s time to take a look at some of the world’s emerging economies and how they performed in 2019.
We’ll also explain the factors impacting their growth and what to expect in terms of forecasted growth for 2020.
With a GDP of over $14 billion, China has topped the charts for top emerging economies for more than 25 years. While China initially enjoyed massive growth throughout the 1990s and 2000s, this growth has slowed over the last decade.
Investor concerns around the Chinese government, as well as financial risks, has stalled, which would have otherwise been sky-high growth.
However, the tide seems to be turning for China as their economic growth increased by 6.9% in 2017, the first time since 2010, due to increased demand in Chinese produced goods.
Recent troubles, like the US-China trade war, has once again stalled China’s economic growth. During quarter three of 2019, the Chinese economy only grew by 6%. While this figure is in line with the Chinese government’s growth goals, it’s also the weakest rate since 1992.
Also topping the charts for emerging economies, India has recently seen an explosion of growth as its cheap workforce powers some of the world’s largest corporations.
India's economy has significantly grown since the 1990s when the government released new policies to improve their global market competition, residents’ living standards and per capita income.
As the Chinese economy suffers its worst rate in nearly two decades, neighbouring India is starting to gain traction. While India’s growth this year wasn’t as high as last year (6% compared to 7.4%), it’s still the world’s second-fastest-growing economy — falling behind China by a mere 0.1%.
Following 2014 to 2016 economic recession, one of the worst in its history, Brazil has been on the path to recovery. Since 2016, Brazil’s GDP has rebounded to previous rates and seen a 1% growth, while inflation has decreased by 2.9%.
Brazil’s current GDP is valued at over $2 billion and represents one of the largest economies in South America.
2019 was a significant year for Brazil with Jair Bolsonaro taking office on January 1st. Under his leadership, there have been widespread changes to Brazil’s economic policies, including budget cuts and reduced taxes. Despite being somewhat controversial, these changes have made a positive financial difference with the Brazilian real gained 10% against the USD.
Brazil’s economic growth throughout 2019 was so positive that the Central Bank increased its growth projections from .08% to 0.9% for 2020.
With a healthy GDP and the 2nd largest economy in Latin America, Mexico has quickly become a favourite emerging economy for investors.
Mexico’s economy has demonstrated year-over-year growth since 2016, increasing from $1.07 trillion to $1.2 trillion in 2018.
However, new trade barriers imposed by Donald Trump has created challenges for Mexico as the Mexican economy relies heavily on exports to the US. Since the Mexican peso follows the US dollar, troubled relationships with the US can hurt the Mexican economy. Additional challenges like the decline in industrial production, investments and a weakening of the service sectors have also impacted the Mexican economy.
These factors combined to result in a 0% growth during quarter two of 2019 and meagre growth forecasts of only 0.8 GDP growth in 2019 and 1.4% in 2020.
As Southeast Asia’s largest economy, Indonesia has attracted considerable attention as an emerging economy. Indonesia's current GDP is $1,074 billion.
The Indonesian economy relies heavily on foreign money to find its deficits, with 40% of Indonesian government bonds owned by foreign entities. Since 2014, foreign ownership of government bonds has increased by 7%.
While foreign capital is usually a good thing for an economy, it also creates a reliance which can create challenges should the international market experience its own turbulence. Despite this vulnerability, Indonesian has experienced year-on-year growth of roughly 5.27% from 2000 to 2019.
Indonesia’s economic growth during 2019 followed a similar pattern with 5.02% growth in the third quarter of 2019, the weakest rate since Q2 2017. For 2020, experts have predicted Indonesia's economy will grow by 5.3%.
Russia has the 12th largest economy in the world in terms of GDP but has experienced quite a lot of turbulence and difficulties due to post-Soviet era sanctions. While this situation improved since 1998 when the government defaulted on Soviet-era debt, growth has been staggered.
Foreign investors and bodies raised concerns in 2014 over Russia’s dependency on oil exports, especially given the international trade sanctions imposed after Russia’s involvement with Ukraine.
Since 2014, Russia has made significant progress towards achieving a stable economy and diversifying its assets/GDP composition.
Russia averages a yearly growth of 1.7%, including 2019. While Russia has maintained a stable growth rate, 2019’s growth of 1.7% was slightly below the Ministry of Economic Development’s early estimate of 1.9%. For 2020, Russia’s economy is expected to grow by 1.8%.
Over the last decade, Turkey has significantly improved its economic and social developments, which in turn has attracted foreign investors.
Last year, this optimism was diminished by Turkey’s economic downward spiral and market fears surrounding the country’s dependence on foreign funds. After all, Turkey has one of the most substantial account deficits in the world. These factors lead to the collapse of the Turkish lira, which impacted other nations like Argentia and South Africa.
Given the situation in 2018, it’s not surprising that Turkey’s growth in 2019 was rather modest with only a 1.20% growth in the second quarter — well-below the government’s original forecast of 2.3%. The government has also set very ambitious growth plans for 2020 with a target of 5% growth.
So What Does 2020 Look Like for Emerging Economies?
While 2020 could hold massive potential for emerging economies, many investors remain cautious. Situations, such as the Federal Reserve interest hikes, US & China Trade war, and Brexit, create an atmosphere of uncertainty. So, many investors are waiting to see how these high-stakes events play out before investing in emerging economies.
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