Apart from Asia, Emerging Markets Continue to Struggle

With the global economy in need of a new source of growth, emerging markets remain the best hope for many investors and exporters.  In Asia, most emerging markets continue to record strong rates of growth, even if the region’s growth rates are below their previous levels.  However, outside of Asia, most emerging markets have fallen on hard times in recent years and little, if any, export and investment growth is being realized in emerging markets outside of Asia.  In Latin America, the region’s largest economy, Brazil, remains in a deep recession, while many other key economies in that region are struggling with low commodity prices and weak domestic demand.  Likewise, Central and East European economies have largely recorded disappointing economic results in recent years, particularly Russia, which remains in a recession.  Finally, low commodity prices have severely reduced growth rates in emerging markets in Africa and the Middle East.  Altogether, emerging markets outside of Asia have contributed almost nothing to global economic growth over the past 18 months and most will continue to struggle over the next 18 months.

No region has experienced more economic hardships than Latin America in recent years, with economic growth rates falling dramatically across the entire region.  In Brazil, the region’s dominant economy, a deep recession has taken hold, with the Brazilian economy contracting by nearly 4% last year, a decline that is expected to be repeated this year.  Meanwhile, Venezuela’s economy has completely collapsed thanks to the gross mismanagement of that country’s economy by its far-left government, while Argentina faces years of sluggish growth as it attempts to rebuild its ties with the rest of the global economy.  In Mexico, the region’s second-largest economy, economic growth rates remain well below their potential, as that country continues to have one of the world’s most disappointing economies.  Altogether, low commodity prices and weak domestic markets will hold down growth rates across Latin America and this once promising region will record sluggish growth rates for at least the next two years.

Another region that has largely struggled to record impressive rates of economic growth in recent years in Central and East Europe, although this region has two distinct sub-regions.  In the east, the region’s main economies have been devastated by a combination of low commodity prices and political unrest.  Russia, the region’s largest economy, remains in a deep recession brought on by the country’s failure to diversify its economy away from its dependency on high natural resource exports as well as the impact of international sanctions that were put in place against Russia in the wake of the conflict in Ukraine.  Meanwhile, Ukraine’s economy is only now pulling out of its deep recession and growth rates will remain relatively low there as long as the political and security situation in that country remains unresolved.  In Central Europe, things look a little brighter as that region’s main exporting economies have benefitted from the tentative recovery in key West European export markets.  Nevertheless, growth rates fell more than expected across Central Europe in early 2016 and any additional economic problems in West Europe would have a major impact on countries such as Poland, Hungary and Czechia (formerly known as the Czech Republic).

Finally, the emerging markets of the Middle East and Africa had been expected to become increasingly important drivers of growth for the global economy over the longer-term thanks to their rapidly-expanding populations and oil wealth.  However, the sharp fall in oil prices over the past two years has led to a dramatic decline in economic growth across much of these regions and is damaging their longer-term growth potential.  In the Middle East, the region’s oil-rich economies have been forced to make major spending cuts in the wake of the fall in the price of oil, reducing overall economic growth rates in these countries.  Meanwhile, larger Middle Eastern emerging markets such as Turkey and Egypt have struggled to return to the higher levels of growth they recorded just a few years ago.  In Sub-Saharan Africa, growth rates have fallen significantly in recent years, particularly in the region’s larger economies.  Oil-rich countries such as Nigeria, Angola and Ghana have seen their growth rates plummet due to lower oil prices, while South Africa, once the region’s success story, has fallen on hard times due to a combination of lower natural resource prices and labor unrest.  Altogether, these emerging regions had been expected to provide a larger share of the growth for the global economy, but their recent struggles have instead held back the global economy from reaching its growth potential in recent years.