Emerging markets are back in analysis for growth prospects after a positive outlook for global growth and trade in 2017-2018. The average growth in Emerging markets is expected to clock 4.1 percent in 2017, up from 3.5 percent in 2016 and is touted to accelerate further to 4.5 percent and 4.7 percent in 2018 and 2019, respectively. This is due to stabilization in commodity process, oil prices, and a general upward swing in momentum of growth for major global economies such as the United States.

Frost & Sullivan has categorized emerging markets as those with a population of 5 million or more, a nominal GDP of more than $20 billion and that fall under low, lower middle or upper income country. Further to these parameters, the countries have been classified as Emerging economies, if they fulfill certain other indicators under the Growth, Innovation and Leadership Index (that Frost has patented), and thereby are placed, under three categories -Frontrunners (score of five and above), Rising stars (a score of 4-4.99) or Nascent Emerging Markets (0.00-3.99). The following report summarizes key emerging markets from the APAC region and gives a short perspective on macroeconomic trends to look out for the year ahead:

Vietnam

A frontrunner in the GIL index Vietnam has been growing steadily since the ’80s, when it transitioned out of a centrally planned system and pursued economic renovation to position itself as a leading emerging economy. The steadfast growth of nearly two decades, faltered off late, in the last two years (2015), primarily due to the  agricultural sector’s lackluster performance due to adverse weather conditions, low growth of mining sector due to a slump in commodity prices (agriculture, mining and forestry shrunk by 0.5 percent together) and a dip in its production of mobile phones, which it is one of the largest exporters off. (Smart phone exports were down in 2016-2017.)

Yet the overall outlook for Vietnam remains strong, as it seeks to restructure its economy toward reducing fiscal deficit (further to 3 per cent in 2018), and targets a growth rate of 6.4-6.8 per cent for 2018, by focusing on growth in other main sectors such as construction, trade (exports), banking, and tourism. The Vietnamese government is also planning to cut interest rates to fuel the economy in the next two years and plans to attract more foreign investments into banks. Tourism is also a major driver of Vietnamese economy and international tourist inflow reached nearly 3.2 million in first quarter of 2017.

Some of the factors that can restrain Vietnam’s growth in the future can include its weather dependent agricultural sector, corruption and a potential effect on exports due to the US pulling out on Trans- Pacific trade deal early 2017.

Sri Lanka:

A Rising star in the GIL Index, Sri Lanka’s economy would make considerable progress once the fiscal imbalance lessens and the economy improves its productivity by large. Sri Lankan debt stands at about $9 trillion and this includes repayments to major donor countries such as China, and other multilateral institutions .About 95 per cent of its revenues go towards debt repayments largely and this continues to be a restraint in driving down its economy. The economy is expected to grow a modest 4.8 percent in 2017  and this can be attributed to the severe drought that has been prevalent in the country, since the past two years affecting, agricultural and related sectors output, along with Government’s tighter monetary and fiscal policies to reign in the enormous fiscal deficit . Key drivers of the economy being Industrialization and Modernization, Sri Lanka hopes to increase capacity utilization and generate its own internal inflows (than create through debt), and make it a competitive economy once again, once the fiscal imbalances are fixed. Upgrading education, training, and skills are on the agenda to give boost to its most competitive advantage of factor of production-labor, and to make it more of an export-oriented economy rather than just focus on infrastructure development through heavy borrowing. The government also plans to give boost to its tourism sector that has been one of the major earnings for the country in the near past. Fiscal deficit is anticipated to come down by 5 percent, once the ongoing fiscal reforms take effect. The expectation is that chart Sri Lanka gets on to a new favorable path of sustainable economic development.

Indonesia

Indonesia could very well qualify to become a frontrunner within a couple of years, if it manages to keep its accelerated growth rate going(of 5 percent and more) and continues on its path of undertaking economic reforms. It has weathered global uncertainties well in the last few years due to policy reforms undertaken by the government and a sound economic base. It has clocked one of the highest growth in emerging market economies in 2016 (5 percent GDP) and it is predicted to outperform most South East Asian countries in the next couple of years in terms of growth rate .It is expected to grow at 5.1 percent in 2017 and 5.3 per cent in 2018. The growth momentum has been kept up, largely due to the Indonesian government’s efforts to reduce bottlenecks in the economy. Expanding public infrastructure while being prudent on fiscal discipline, tax reforms, liberalizing areas of economy to private investments, and being more open to trade and investment have laid the foundation for a strong unhindered growth rate. The government plans to continue on its path of economic reforms and plans to open up more industries to foreign investments and invest in infrastructure projects, such that it creates a multiplier effect.

What Indonesia has in its favor, is a young population and a government that is proactively pushing for economic development through various structural reforms. It has to be cautious though, about uncertainties affecting it in the future, especially from the US Exit of Trans Pacific Agreement and its overall effect in the region. Moreover internally, it needs to continue to focus on improving education and productivity of the labor force, by addressing the skills gap present in the education system, thus positioning itself in the realms of a high skilled economy.

Nepal

One of the rising stars in emerging markets in South Asia and APAC, Nepal’s economy saw a dip in growth in the last two years due to the major earthquake in April 2015 and due to an Indian trade embargo in 2016, that contributed to less trade across the border. (Real GDP fell to 3.3 percent in 2015 and 0.4 per cent in 2016). The economy has since rebounded, recording a strong growth of nearly 7.5 percent in FY 2017 (the highest growth witnessed by the country in two decades since 1993/1994). This can be attributed to a good monsoon in current year resulting in bumper agricultural output, robust manufacturing sector growth, along with government initiatives to get the country and infrastructure back on track with post-earthquake reconstruction programs since 2015. The government has engaged with China in the Belt and Road initiative to build a 500 km rail network that will connect China’s Western region to Kathmandu. This is supposed to spur up passenger and goods traffic along the route. The government has also initiated several reforms under New industrial Enterprise Act, Special Economic Zone Act, and   Financial Intuition Act and has restructured the power industry by revamping distribution networks and tariffs. Tourism has also seen a revival after 2015 earthquake and it has since been one of the major revenue earners for the country.

For Nepal to sustain the growth momentum, it has to invest more in the economy the public investments and in critical sectors such as power and infrastructure. Remittances from abroad make up a third of Nepal’s GDP and this has been falling due to uncertainty in the Middle East where most of the Nepali migrant labor is based, thus creating a potential fall in GDP. The government needs to invest in human capital such that it can retain its own labor to aid in Nepal’s productivity in the long run and contribute further to its economic development.

Myanmar.

Myanmar’s economy has slowed since 2015 after a period of growth once military rule ended in 2011 and it started on a path of economic liberalization. The growth dipped from around 7 per cent in 2015 to 6.5 percent in 2016-2017. This has been largely due to the floods in 2016 that has affected agricultural output and hence the sector (growth fell from 3.4 percent to 2.5 percent). Moreover, with the commodity prices being down in the last two years , the industrial sector  has also recorded a period low growth in 2015-2016 (growth fell from 8.7 percent to 8.2 percent).

Growth has recovered since 2017 and the growth rate is expected to reach 7.7 percent in 2017 -2018 and nearly 8 percent in 2018-2019. FDI inflows and aid inflows are supposed to aid in strengthening recovery. The Government plans to continue on its path of economic reforms and tackle inflation and trade deficit and plans to invest in infrastructure, healthcare, and boost businesses of small and medium enterprises within the country. Long-term focus has also been to develop the manufacturing sector and tackle inherent corruption at large. The nascent economy can become a rising star, if the economic reforms continue unabated and the government works toward macroeconomic stability, by improving fiscal situation and allowing for a flexible exchange rate.

Pakistan

Pakistan had a robust performance in 2016 (4.7 percent growth rate) making it one of the fastest growing economies in South Asia, due to an increased growth in service sectors and industry  It has now been deemed an emerging market, from being classified a frontier market in the last decade. This has been due to an increase in capital inflows combined with low oil prices, which have helped to record a more than moderate growth rate. The International reserves have tripled to more than $18 billion (2016) and FDI is supposed to cross the 1 billion mark in the next one year. ADB has projected a growth rate of 5.2 percent in 2017 and 5.7 percent in 2018 that is above average. The country also has had increased investor confidence lately, due to increased Chinese investments and its initiative to link Pakistan and China through the CPEC corridor for trade, under the larger BELT and ROAD initiative by China.

Yet the momentum can derail, unless Pakistan does not control its burgeoning Current Account deficit and increase its export base. The current account deficit stands at nearly $32.6 billion and the export market has not stabilized the past few years (exports have collapsed to a 6-year low in 2016-2017) for the deficit to come down. This has been due to low cotton production (and exports) in the past two years and heavy debt combined with now stabilizing oil prices that can further increase the value of imports. Pakistan governments’ implementation as far as reforms are concerned has been mixed and it needs to act on this to balance macroeconomic stability. Pakistan also has one of the lowest Human Development Indicators in the region and its focus needs to be on scaling up its Human Index Parameters through adequate policies order, for it to achieve overall economic development.

Bangladesh

Bangladesh has been growing at a steady rate the past decade and has managed to clock in a growth rate of more than 6 per cent over the years. It recorded an impressive growth rate of nearly 7.1 percent in 2016 and has recorded a steady growth rate in the range 6 percent, for the last 6 years in a row. The projected growth rate for the next two years is in the range of 6.8 percent to 6.4 percent, in line with previous year’s growth of 6 percent and above. (World Bank). The government’s growth rate for 2017-2018 has been in the target range of 7.4 per cent and to target an inflation rate of 5.5 percent for 2017-2018.

A large part of the success can be attributed to the buoyant garment industry that exports most of its production mainly to the United States and European countries. Clothing makes up 14 percent of the GDP and about 80 per cent of its exports. The growth has also been largely inclusive for Bangladesh, with poverty reducing from 40 per cent in 1991 to nearly 14 per cent in 2016. Bangladesh is one the countries in South Asia with least barriers to investment (100 percent Foreign investment in certain sectors) and least barriers for companies to exit. Non-profits also have helped the country in poverty reduction and in closing the gender gap to a certain extent and the current government has chalked out a new monetary policy that aims for higher private sector growth (around 17 percent) for 2017-2018.

The outlook for Bangladesh continues to remain robust for the next few years, but for it to move into a middle income country range, there needs to be certain structural changes that have to addressed by the government including investing in infrastructure, energy, and broadening its base of  exports. Bangladesh also needs to improve upon its female participation rate in workforce and improve its business climate to attract investors to invest within its  sectors.

The outlook for emerging markets looks promising, but for long term prospects to remain positive, factors such as poor productivity, high fiscal deficits, weakness in public investments needs to be dealt with, as they can limit  growth in the long run. Moreover, a lot needs to be done by these countries in regards to financial sector reforms and regulatory framework improvements, to make their countries more investment friendly. Political uncertainty can also affect economic growth and the need for a stable government in resolving critical issues is crucial in order to chalk out long term plans for the economies. The world economy is stabilizing and the resilience of emerging markets to withstand global uncertainties and become a major driver of global growth is sorely dependent on addressing these challenges.

Your Transformational Growth Journey Starts Here