Emerging markets took over global growth - April 16, 2017

Emerging markets took over global growth

Emerging markets took over global growth according to IMF’s new World Economic Outlook, published this week. The study also points out that advanced economies are slowing down. The phenomenon started decades ago but the financial crisis sped things up a great deal.

As IMF writes: “In recent decades, the contribution of emerging market and developing economies to global growth of output and consumption has increased rapidly”. This also means that these countries are more and more relevant for global economy and that they took over global growth.

Contribution to Global Growth

This is not a new phenomenon, it turns out. Since the 2000s emerging markets are taking over, and “After the global financial crisis, with advanced economies experiencing a slow recovery, emerging market and developing economies’ contribution to global growth rose to about 80 percent of output growth and 85 percent of consumption growth”.

As we can see from the graph above, emerging markets also took over in consumption. They are spending more than advanced economies, so the common belief that they are just producing goods for the western world isn’t true anymore.

This might all be connected to how fast middle class is growing in countries like China. We wrote about it several times how the Eastern country already took over America regarding the biggest middle-class. This is rather important for domestic consumption and makes China more and more important to US companies like Apple or Amazon. What’s more, the eastern country also has more billionaires than the US does and they are also producing them faster than any other country. As we pointed out it last week in our post, there are other sectors where the Far East and Middle East grows faster than any other region: aviation.

All this is important, but there is another thing that has a high importance: incomes. In this regard, developing markets are far behind their western counterparts. As IMF found out, “In 90 percent of emerging market and developing economies, current real income per capita (…) is less than half what it is in the United States. In 85 percent (…), real income per worker is less than half that in the United States.”

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving high returns on their investments.