20140327-NATIXIS-Emerging_economies_will_have_different_trajectories_in_2014_12页_402kb

Summary of FLASH ECONOMICS - March 27, 2014 - No' 209

Core Content

This document provides a detailed analysis of the cyclical positions and growth prospects of major emerging economies in 2014. It highlights the divergent trajectories of these economies due to a combination of external and internal factors, including tightening external financing conditions, exchange rate adjustments, commodity price volatility, and rising political risks.

Main Emerging Economies Overview

Emerging Asia

Emerging Asian economies are divided into two groups based on their growth trajectories:

• Group 1 (Stabilisation or Slight Improvement):

  • Countries: South Korea, Singapore, Hong Kong, Taiwan, and China.
  • Upside Risks:
    • Healthy growth in developed economies.
    • Strong Chinese growth.
    • Implementation of structural reforms.
  • Downside Risks:
    • Weak US and EU recovery.
    • Weak Chinese growth.
    • Sharp depreciation of the yen.
    • Financial risks in China.
    • Real estate decline in China.
    • Persistent capital outflows and emerging risks.

• Group 2 (Slowdown):

  • Countries: Philippines, Malaysia, Indonesia, India, Thailand.
  • Upside Risks:
    • Pro-growth policies and reforms.
    • Renewed investor confidence.
  • Downside Risks:
    • Electoral uncertainties.
    • Persistent capital outflows.
    • External imbalances.
    • Political tensions.
    • Weak external demand (China, Japan).
    • Growth slump in Japan.
    • Intensifying political crisis in Thailand.

Latin America

• Mexico: Expected to see accelerated growth due to reforms and US recovery.
• Peru and Colombia: Benefit from strong domestic markets.
• Brazil: Likely to experience listless growth due to monetary and fiscal tightening.
• Chile: Growth is expected to slow due to the slump in copper prices.
• Argentina and Venezuela: Likely to face recession due to deteriorating fundamentals and intense political tensions.

Emerging Europe

• Central and Eastern Europe: Expected to see accelerated growth due to the euro zone recovery, improved fundamentals, and historically low interest rates.
• Russia: Growth will be hampered by structural and cyclical factors, as well as the risk of economic isolation.
• Turkey: Expected to experience a slowdown due to tightening financing conditions and structural issues like low national savings and competitiveness.

Key Information

• Global Trade Recovery: The global trade recovery, which started in mid-2012, has already contributed to the economic recovery in many emerging Asian countries.
• Financial Risks: Several countries, especially China, face significant financial risks, including credit risk and the possibility of a "hard landing."
• Exchange Rate Adjustments: Exchange rate adjustments and volatility have impacted trade balances and capital flows.
• Commodity Price Volatility: Commodity price fluctuations have had a significant effect on economies dependent on exports, such as Chile and Russia.
• Political Instability: Political instability and tensions have led to capital flight and economic slowdowns in countries like Ukraine, Thailand, and Venezuela.
• Structural Weaknesses: Many emerging economies suffer from structural issues such as poor infrastructure, low domestic savings, and weak labor skills.
• Investor Confidence: Uncertainty surrounding elections and policy reforms affects investor confidence and capital flows.
• Economic Isolation Risk: Russia faces the risk of economic isolation due to geopolitical tensions and sanctions.
• Growth Forecast: The overall growth forecast for emerging economies was revised downward to 4.6% for 2014 from 5.0%, reflecting the heterogeneous nature of their economic cycles.

Growth Trends and Risks

• China: Expected to stabilise at 7.5% growth, with Q1 2014 being the low point. The country faces financial risks but has strong structural reforms and policy support.
• South Korea: Growth is stabilising, supported by healthy developed economies and strong Chinese growth.
• India: Expected to stabilise at the bottom of its economic cycle, with risks from inflation and political uncertainty.
• Indonesia: Experiencing a slowdown, with risks from political uncertainty and external imbalances.
• Thailand: Growth remains weak due to unresolved political crises.
• Russia: Growth is expected to stabilise at 1.5% in 2014, but faces structural and cyclical challenges, as well as risks of economic isolation.
• Turkey: Growth is expected to slow due to tightening financing conditions and reliance on short-term capital flows.
• Central and Eastern Europe: Expected to accelerate growth to 2.7% in 2014, supported by the euro zone recovery and low interest rates.

Conclusion

The document concludes that emerging economies are experiencing a heterogeneous growth cycle in 2014, with some stabilising or improving, while others face slowdowns or recessions. The analysis underscores the importance of addressing structural weaknesses, managing external imbalances, and mitigating political risks to ensure sustainable growth.