Group Economics Emerging Markets
Emerging Markets Outlook Different growth paths
Marijke Zewuster T: +31 (0)20 383 05 18 marijke.zewuster@nl.abnamro.com
24 June 2015
Growth in many emerging markets disappoints again in 2015
Since our November 2014 edition, we have lowered our growth forecasts for Latin America and Emerging Europe
Growth in Asia will more or less stabilise overall, with India being the fastest grower
We expect a recovery in Latin America and Eastern Europe in 2016, but downside risks are considerable across the board
Growth disappoints again
in 2015, but after a disappointing first quarter we are now
While regional growth in Asia has remained markedly stable in
forecasting 2.7% growth for 2015. This is in contrast to the
recent years, at an average rate of around 6.4%, trends in
eurozone, which is faring slightly better than expected. We
Eastern Europe and Latin America are declining. In Eastern
expect growth here to improve from 0.9% in 2014 to 1.8% in
Europe, growth fell from a meagre 1.8% in 2013 to 1.3% in
2015 (rather than 1.5% as forecast in November).
2014 and we actually expect a contraction of around 1% this
Overall, world growth is likely to come out just a meagre 3%
year. In Latin America, growth dropped from 2.4% to 1% in the
for the fourth year running in 2015, with emerging market
same period and, with a little luck, will remain just above 0% in
growth expected to fall from 4.6% in 2012 to just below 4% in
2015. The divide among the BRIC countries has continued to
2015, and growth in advanced economies to increase from
widen, with Brazil and Russia likely to see their economies
1.2% to 2.2%. So, although emerging markets still account for
contract this year, while China and India are still showing
the bulk of world growth, advanced economies are gradually
growth rates of around 7%.
making a bigger contribution.
Divide between BRIC countries widens
Slowdown in growth emerging markets
GDP growth, % yoy
GDP growth, % yoy
16
10
12
8
8
6
4
4
0
2 0
-4
-2
-8 07
08
09
Brazil
10
11
China
12 India
13
14
15
16
Russia
07
08
09
10
11
EM
12
13
14
15
16
Developed
Sources: ABN AMRO Group Economics, EIU
Source: ABN AMRO Group Economics
Disappointing growth in Eastern Europe is due mainly to
Emerging Europe: Large differences in growth
Russia and Ukraine. In Latin America, existing structural
Since our November edition, we have lowered our 2015
imbalances are exacerbated by a strong decline in confidence
growth forecast for Eastern Europe from 1.8% to -0.9%. Not
driven by domestic political developments, reinforcing the
surprisingly, the outlook for Russia and Ukraine, in particular,
negative impact of lower commodity prices and rising risk
has been revised downwards. While in November we still
aversion.
expected growth in Russia to stabilise at low levels and Ukraine to show a recovery, we now believe Russia’s
Other factors include falling growth momentum in the US and less strong growth in global trade. In November, we expected US economic growth to strengthen from 2.4% in 2014 to 3.8%
economy will contract by 4% and Ukraine’s by 10% this year.
2
Different growth paths – 24 June 2015
The economic slowdown in Russia is driven mainly by the
2015, making it the only BRIC country to see an increase in
plunge in oil prices, as well as the escalated conflict in Eastern
growth. In Thailand, we also expect growth to accelerate,
Ukraine and domestic imbalances. The gap between Central
following an exceptionally weak 2014 driven by political unrest.
European EU member states, on the one hand, and Russia and Ukraine, on the other, has widened. Supported by
Overall, however, we expect growth in most countries in the
improved conditions in the eurozone and strong domestic
region at best to stabilise at their 2014 levels (Indonesia,
dynamics, Central European EU member states continue to
Singapore, Hong Kong, Taiwan) or to decline (China,
show a clear and unabated recovery. In Turkey, the economy
Malaysia, South Korea). In China, the authorities will take
is losing some steam, due in part to monetary policy tightening
additional support measures, if necessary, to prevent growth
and uncertainty surrounding the recent elections, but it is still
dropping (too far) below the 7% target. As a result, we expect
one of the region’s fastest growing economies.
growth in China to pick up in the second half of the year.
Latin America: Pacific Alliance maintains the lead Since our November edition, we have lowered our regional
There is also enough slack in most other countries to introduce
growth forecast for Latin America from 2.5% to 0.3%, the
monetary and/or fiscal stimulus measures. We believe that
biggest driver no doubt being Brazil. Last year, we believed
highly export oriented countries (such as Korea, Hong Kong,
that confidence would return and ensure reasonable growth
and Singapore) will benefit from the recovery in the US,
after the elections. However, the opposite is true, and the 1%
eurozone and Japan later this year. Despite the recent
contraction now expected for Brazil, may even prove too rosy.
correction, lower oil prices remain a favourable driver as most Asian countries are net oil importers.
Next to Brazil, Argentina and Venezuela are also in recession. As a result, the divide between these countries and those that
Better growth prospects in 2016…
make up the Pacific Alliance (Chile, Colombia, Mexico, and
We believe that the growth acceleration in advanced
Peru) has widened further. Although we have become a little
economies will also eventually boost manufacturing confidence
less upbeat about the Pacific Alliance countries as well, their
in Latin America and Emerging Europe. This, and the
average growth rate still hovers around 3.5% (rather than 4%
improved competitive strength due to weaker currencies, will
as previously forecast).
propel growth in both regions to around 2% in 2016. Given the many long-term challenges (infrastructure, low productivity
Mexico and Colombia, in particular, have been hit by lower US
etc.) and overt or smouldering geopolitical conflicts, there is
growth and declining oil prices, with Mexico and Chile also
little chance of stronger growth for the time being. Growth in
being affected by political uncertainty. We expect growth in
Asia is again expected to be just below 6.5%. It also remains
Chile and Mexico to recover from around 2% in 2014 to around
the region with the best possibilities for economic support
3%. Colombia’s economy will slow down from 4.6% in 2014 to
measures.
3.5% in 2015, while Peru will again be the fastest growing country, posting 4% growth.
…but risks have increased Rising global bond yields and the impact of US interest rate
Asia remains the uncontested growth engine
hikes (the first of which we expect in September) may combine
In contrast to the other two regions, we have raised our
to adversely affect our emerging market forecasts. As the
regional growth forecast for Asia from 6% to 6.3%, based on a
situation stands, however, we believe that stronger growth in
substantial forecast revision for India due to a change in the
the US and Europe, coupled with ample liquidity conditions in
way its GDP is calculated. This more than offsets the
other markets (Europe, Japan), will be sufficient to offset the
downward forecast revisions for Indonesia, Malaysia,
negative impact.
Singapore, and South Korea. In China, we still see a slowdown in growth from 7.4% in 2014 to 7% in 2015. Due to the adjustment, growth in India also turns out to have been higher in previous years. Nonetheless, we expect India’s economy to accelerate further from 7.3% in 2014 to 7.5% in
3
Different growth paths – 24 June 2015
Still, we may see an increase in risk aversion over the next few months, causing substantial volatility in interest rate and currency markets in emerging economies, especially in countries with sizeable external debts and/or large current account deficits. Rising interest rates will also restrict the room for monetary easing. Other major risks include a sharper slowdown in growth in China, a continued decline in commodity prices, and an escalation of geopolitical risks.
External imbalances % GDP
External debt 70
POL
60
MAL
TUR
CZE
50 40
MEX
SAF
30 PER 20
BRA COL
CHL RUS
UAE
ISR
THA
IDN
KOR
SAR IND
10
CHN
0 -8
-6
-4
-2
0
2
4
6
Current account balance Source: EIU
Main economic indicators/forecasts GDP growth (%) Emerging Asia Emerging Europe Latin America Middle East/North Africa Emerging markets total
2013 6.5 1.8 2.4 1.5 4.6
2014 6.4 1.3 1.0 3.0 4.4
2015e 6.3 -0.9 0.3 2.9 3.9
2016e 6.4 1.9 2.0 4.1 4.8
-0.4 2.2 3.2
0.9 2.4 3.3
1.8 2.7 3.2
2.3 3.1 3.8
2013 -2.5 -1.5 -3.0 0.5
2014 -2.5 -1.5 -4.5 -2.0
2015e -2.5 -3.0 -5.5 -7.0
2016e -2.5 -2.0 -4.0 -4.0
Eurozone -2.9 -2.4 US -4.1 -2.8 Source: EIU, ABN AMRO Group Economics
-2.3 -2.5
-2.0 -2.2
Eurozone US World Budget balance (% GDP) Emerging Asia Emerging Europe Latin America Middle East/North Africa
Inflation (%) Emerging Asia Emerging Europe Latin America Middle East/North Africa Emerging markets total Eurozone US World Current account (% GDP) Emerging Asia Emerging Europe Latin America Middle East/North Africa Eurozone US
2013 4.7 5.3 8.9 13.5 6.5
2014 3.5 6.3 12.6 7.4 5.8
2015e 2.7 11.1 13.5 7.1 6.0
2016e 3.2 5.3 11.5 6.8 5.2
1.3 1.5 4.3
0.5 1.6 3.9
0.4 0.1 3.6
1.7 2.5 3.7
2013 1.0 -1.5 -3.0 8.5
2014 2.0 0.0 -3.0 5.5
2015e 2.5 1.0 -3.5 -1.0
2016e 2.0 0.0 -3.0 1.0
2.6 2.9 3.2 3.1 -2.4 -2.3 -2.3 -2.4 * figures Emerging Markets regions are rounded
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4
Different growth paths – 24 June 2015
Update: 24/06/15
Nom inal GDP
GDP grow th (% yoy)
EUR bn
Inflation (CPI, % yoy avg)
Forecast:
Govt balance (% GDP)
Forecast:
Governm ent debt (% GDP)
Forecast**:
Forecast:
2014
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
Russia
3447
0.6
-4.0
0.5
7.8
15.0
6.0
-0.5
-3.5
-1.5
10
13
14
Poland
872
3.4
3.5
4.0
0.0
-0.5
1.5
-3.2
-3.0
-2.5
50
51
51
Czech Rep
301
2.0
3.5
3.0
0.4
1.0
1.5
-2.0
-2.0
-1.5
43
42
42
Hungary
223
3.6
3.0
2.5
-0.2
0.0
2.5
-2.6
-2.5
-2.0
77
75
74
Romania
371
2.8
3.0
3.5
1.4
0.2
0.9
-1.5
-1.5
-3.5
40
40
42
Bulgaria
114
1.7
1.5
2.5
-1.4
0.5
2.1
-2.8
-3.0
-3.0
28
30
31
China
15083
7.4
7.0
7.0
2.0
1.5
2.0
-1.8
-2.5
-3.0
16
17
19
India
6253
7.3
7.5
7.5
6.7
5.5
5.5
-4.0
-4.0
-4.0
51
50
48
South Korea
1601
3.3
3.0
3.5
1.3
1.0
2.0
0.6
0.5
1.0
37
37
38
Taiw an
934
3.7
3.5
3.5
1.2
0.0
1.5
-1.4
-1.0
-1.0
33
34
35
Hong Kong
366
2.5
2.5
3.0
4.4
3.5
3.0
0.8
0.0
-1.0
40
41
42
Indonesia
2330
5.0
5.0
5.5
6.4
6.5
5.0
-2.2
-2.0
-2.0
25
25
26
Thailand
934
0.7
3.5
4.0
1.9
0.0
2.5
-2.2
-2.0
-2.0
50
54
57
Singapore
407
3.0
3.0
3.5
1.0
0.0
1.5
1.3
-1.5
0.5
105
109
109
Malaysia
654
6.0
5.0
5.0
3.1
2.0
3.0
-3.5
-4.0
-3.5
54
55
55
Philippines
591
6.1
6.0
6.5
4.2
2.5
3.5
-0.6
-2.0
-2.0
45
45
44
Brazil
3101
0.1
-1.0
2.0
6.3
8.3
5.5
-6.3
-6.5
-4.5
59
65
65
Mexico
1971
2.1
2.5
3.0
4.0
3.2
3.8
-3.2
-3.5
-3.0
42
45
47
Argentina
842
0.5
-0.5
1.0
38
28
26
-2.5
-3.5
-2.5
39
41
41
Venezuela
538
-2.9
-6.0
-4.0
62
80
70
-13.2
-17.5
-12.0
53
56
58
Colombia
564
4.6
3.5
3.5
2.9
4.4
3.3
-1.4
-2.0
-1.5
47
48
46
Chile
368
1.9
3.0
4.0
4.4
4.1
3.6
-1.6
-2.0
-1.0
15
16
16
Peru
300
2.4
4.0
5.0
3.2
2.8
3.0
-0.1
-0.5
0.0
20
20
19
Turkey
1350
2.9
3.0
3.5
8.9
7.3
6.5
-1.3
-1.5
-1.5
35
34
33
South Africa
659
1.5
2.2
3.0
6.1
4.5
5.1
-3.9
-4.5
-3.5
47
48
47
Macroeconomic forecasts and exchange rates (year end) Current account (% GDP) Forecast**: 2014
2015
Exchange rate against USD:
Exchange rate against EUR:
Recent
Recent
2016 24/06/2015
Forecast**: 2015
2016 24/06/2015
Forecast**: 2015
2016
Russia
3.2
5.0
4.0
54.17
50
45
60.58
50
52
Poland
-1.4
-2.0
-2.0
3.72
3.9
3.3
4.16
4.0
4.0
Czech Rep
-0.9
0.5
0.5
24.32
28
23
27.20
28
27
Hungary
4.4
5.5
6.0
278
320
290
311
320
330
Romania
-0.5
-1.0
-1.0
4.00
4.5
4.3
4.48
4.5
5.0
Bulgaria
0.9
1.5
1.0
1.75
2.0
1.7
1.96
2.0
3.0 7.5
China
2.3
2.5
2.0
6.21
6.3
6.4
6.94
6.5
India*
-1.3
-1.5
-2.0
63.59
65
66
71.12
65
76
6.3
5.5
4.5
1105
1150
1150
1235
1150
1300
12.3
13.5
12.5
30.85
32
33
34.50
32
37
1.9
3.0
2.5
7.75
7.8
7.8
8.67
8.0
9.0
Indonesia
-2.9
-2.5
-2.0
13255
13700
14100
14824
13700
16200
Thailand
2.4
2.0
1.5
33.73
34
35
37.72
34
40
19.1
20.5
19.5
1.34
1.4
1.5
1.50
1.5
1.5
South Korea Taiw an Hong Kong
Singapore Malaysia
4.5
3.0
4.0
3.74
3.5
3.2
4.18
3.5
3.5
Philippines
4.4
4.5
3.5
45.10
44
43
50.44
44
49
Brazil
-4.5
-4.0
-4.0
3.11
3.2
3.4
3.47
3.0
4.0
Mexico
-2.1
-2.0
-2.0
15.40
15.5
15.0
17.22
15.5
17.5
Argentina
-1.0
-1.5
-1.0
9.06
11.3
13.6
10.14
11.5
15.5
Venezuela
0.8
-2.0
-1.0
6.28
6.3
6.3
7.03
6.5
7.0
-5.2
-7.0
-5.5
2548
2300
2300
2850
2300
2650
Colombia Chile
-1.2
-1.0
-1.0
634
630
650
709
630
750
Peru
-4.1
-4.5
-4.0
3.18
3.1
3.2
3.56
3.0
3.5
Turkey
-5.7
-5.5
-6.0
2.68
2.9
2.9
3.00
3.0
3.5
South Africa
-5.4
-5.0
-4.5
12.21
13.66 12.2 12.2 Exchange rate EUR/USD Exchange rate USD/EUR
12.0 1.00 1.00
14.0 1.15 0.87
**Forecasts for govt balance, current account and exchange rates are rounded So urce: A B N A M RO Gro up Eco no mics, EIU, Euro pean Co mmissio n