Emerging Markets Center at Ernst & Young forecasts recovery of Asian markets

A recent report indicating that the slowdown in rapid-growth markets (RGMs) will be short-lived was echoed by other economists.

According to Alexis Karklins-Marchay, co-leader of the Emerging Markets Center at Ernst & Young, slower expansion in the rapid-growth markets is likely this year, but will “only be a blip” before returning to significant growth towards the end of the year.

“Soaring domestic demand in economies starved, for some time, of investment and consumption will offer business exciting new markets for goods and services in the years ahead,” said Karklins-Marchay.

As well as having the option of easing fiscal and monetary policy to accelerate growth, RGMs are also fortunate enough to have a growing middle class with increasingly higher incomes and an appetite to spend.

Ernst & Young’s quarterly Rapid-Growth Markets Forecast (RGMF) noted that the number of households in RGMs enjoying higher incomes will grow sharply over the next ten years. The number of RGM households receiving an income of over $30,000 will more than double reaching 149 million by 2020, overtaking the U.S. ($120 million) and the Eurozone ($116 million).

The growth in household incomes will lead to increased consumer spending. In 2011, two-thirds of consumer spending across the world came from the advanced economies, with the remaining third coming from the emerging markets. However, in 25 years time emerging Asia alone will have overtaken the advanced economies as the key source of consumer spending, responsible for almost 40 percent.

“Consumer demand from RGMs will eventually replace the advanced economies as the key driver of global growth. The shift in import demand should also assist in rebalancing the economy,” said Karklins-Marchay.

The rapidly growing Asian countries are enjoying more prominence in the world economy. This places greater importance on the role these countries must play in efforts to rebalance the global economy. Those countries that have run surpluses in recent years must adjust their growth patterns toward more reliance on domestic demand and should allow greater exchange rate flexibility.

“Rebalancing Asian RGMs will not only make the world economy more stable but will also help the Asian countries themselves, making higher growth rates more durable,” said Karklins-Marchay.