Emerging markets’ GDP to overtake developed economies by 2014

It’s not so far-fetched with almost 70% of total world growth seen to come from emerging markets in Asia.

According to Ernst & Young, business executives surveyed were understandably nervous about the current business outlook. The performance of the emerging markets, led by the BRIC countries, continues to offset sluggish growth in the developed world. Ernst & Young forecasts that the combined GDP of the emerging markets is set to grow by 5.3% in 2012, while emerging Asia is set to grow by 6% in 2012.

“With emerging Asia continuing to outpace the developed world and increase its share of world GDP, rising economic and trade links will see a continued flow of foreign direct investment from Asia. The GDP of emerging markets (measured on a purchasing power parity basis) could overtake that of the developed economies as early as 2014, with about 70% of total world growth in the next few years coming from the emerging markets, of which over half will be from China and India,” says Lou Pagnutti.

What does it mean for business?

Besides an increase in protectionism, the sovereign debt crisis in the Eurozone and the global economic slowdown have raised the possibility of a new credit crunch as banks scale back lending against a backdrop of declining confidence in interbank markets.

The continued strength of domestic demand in many Asian economies, with key manufacturing exporters holding lower levels of stocks than at the onset of the 2008/09 global recession, should help to protect the region from the threat of recession. In addition, many Asian countries still have plenty of scope to cut interest rates further and raise government spending to support growth in the face of weaker demand from the advanced economies.

Lou Pagnutti explains: “Asia will continue to be the most dynamic region in terms of trade. Our estimates show that, by 2030, 40% of spending by the global middle class will take place in Asia, compared with 10% currently. Also, companies headquartered in Asia worry less about asset prices and more about inflation which continues to be an ongoing issue despite tightening monetary policy.”