Slow Growth in Emerging Economies Impacts Global Growth
Emerging economies present a diverse landscape as far as every nation’s key economic drivers are concerned. In turbulent times, this ensures that emerging economies as a whole are seeing only patchy economic growth. The following graph shows the IMF’s (International Monetary Fund) estimates on economic growth in these countries.
Commodity prices, among other factors, have been a key driver of growth in emerging economies. Let’s see how on a case-by-case basis.
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India (INDA) has been a big beneficiary of the fall in crude oil prices (USO) because it’s a large importer of the commodity. This has led to the government being able to deregulate diesel prices last year. It has given consumers additional savings to spend elsewhere. As a result, consumer demand has been rising. This led to a rise in economic output. India does face some headwinds because economic growth fell short of expectations. It rose by 7% between April and June 2015.
China (MCHI) has been in the news lately due to a sharp correction in its stock market. This led to a correction in stocks like 58.com (WUBA), Qihoo 360 Technology (QIHU), NetEase (NTES), and Baidu (BIDU). The devaluation of the yuan against the dollar also impacted stocks markets around the world. It generated concern about a sharp slowdown in economic growth in the country.
Russia (RSX) is a large crude oil exporter. It has been hit severely by a fall in energy prices and the economic sanctions. Its economy was still in a recession in 2Q15.
Latin American countries like Brazil (EWZ) are large exporters of commodities. With commodity prices falling, countries in this region have been hit hard. This region is also affected by a slowdown in China’s economy. The Asian nation is a large export destination for several Latin American countries. As a result, businesses and consumers have lost their confidence in their respective economies. This led to a reduction in spending.
After looking at the state of advanced and emerging economies, let’s look at the outlook for these two groups. We’ll start with advanced economies.