China hurts Emerging Markets

SHARE   |   Wednesday, 04 November 2015   |   By Kabelo Adamson
China hurts Emerging Markets

Commodity driven markets should also rebalance – Dr Davies

The gap between developed and developing economies has narrowed due to the doubling of output per person in the Emerging World between the years 2000 and 2009.
The Managing Director of Emerging Markets and Africa at Deloitte, Dr Martyn Davies said this at a business seminar on the developments in the global markets.
He said over the period, there has been an annual growth rate of 7.6 percent in the Emerging Markets, 4.5 percent higher than in developed countries. He said at that rate, the Emerging World’s average income per capita would converge with that of USA in just over 30 years, which can be known as “the great catch up”.
Despite a period of convergence spanning for almost a decade, the future is divergence. Davies said since 2008, the average GDP per head in Emerging Markets world has only managed to grow by just 2.6 percent faster than US GDP in 2013 and if China is removed from the calculations then the difference is just 1.1 percent. He said at that rate then it would take more than a century for developing economies to catch up with the rich countries, excluding China.
But still things will get worse as Davies said by using the International Monetary Fund’s (IMF) 2015 growth projections; the outlook is even bleaker for the Emerging Markets. The difference between developed and emerging markets, other than China is said to be just 0.39 percent and this pushes convergence to 300 years. The end result, according to Davies, is that expectations of the last decade are likely to be ruined.
Davies said the emerging markets are likely to be affected by China’s rebalancing, which is rapidly transitioning from a producer to investor to consumer. “China’s rebalancing will result in more qualitative growth but not without major dislocations both domestically and internationally,” he said.
He said as China transits to become a leading consumer, commodity driven emerging markets should also rebalance as the race is clearly structural.
For his part an economist at FNB Botswana, Moatlhodi Sebabole, said if the US remains steady and UK recovery is slower than warranted, the growth might not be strong enough to sustain diamonds demand market.
Speaking about the impact of global growth divergence on emerging markets, Sebabole said major emerging markets with exception to India will grow below trend and Botswana is no exception due to weak mining revenues and supply side limitations.
He said bonds of emerging economies are benefitting from low inflation and monetary policy while Botswana yields are falling and thus not benefitting from capital flows.
Sebabole said the current reality, which has been stirred by low commodity prices, has resulted in the stressed current account and fiscal balance coming under threat and a tension between recurrent spending and capital resulted in low productivity.
According to Sebabole, a new normal has developed in the country which includes decline in business confidence influenced by lack of utilities, rising cost of inputs, access to financing becoming more difficult, tapering down on investment expenditure and working capital facilities as well as weak demand prospects.

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