It goes without saying when investors refer to emerging markets, it is most likely to be the big four BRIC countries. Taking Brazil to one side for the moment, Russia, India and China alone were responsible for half of global economic growth. Emerging markets are now the largest economic bloc and are expected to deliver more than 60 per cent of all global growth without any dependency on foreign sources of capital. The major dynamics behind this global economy power-shift can be analysed for the purposes of this article by both the respective demographics of each country as well as the trade relations that the rest of the world has with them.
BRICs and Beyond
The buzz about BRIC is not just a developing country growth success story - they now have the scale to challenge the established major economies in terms of influence on the world economy. So exactly what does it take to create a BRIC-like effect? Some of the Central European economies registered higher income levels than the BRICs at this moment and also had very dynamic economic capacity. The problems is that those countries without a significant population - even though those with successful growth behind them - outside of the BRICs will hardly have an economic impact of global scale.
Which countries are therefore the most likely to have a BRIC-like impact on the world? These countries are mostly scattered around Asia - The Philippines, Bangladesh, Indonesia, Turkey, South Korea, Vietnam, Mexico, Nigeria and Egypt. Some of the names on this list might come as a surprise, however all of these countries are prospering their own domestic demand with a large population with notable strong growth profiles, fast-track reform agendas and the resulting growth is impressive. Looking across the developing world today, the BRICs and leading non-BRICs nations clearly stand out with their economic, global trade and demographic size.
Infrastructure spending in emerging markets overall is just at beginning of a long run. Almost three quarters of the world's urban population that is half the population of emerging markets will migrate to urban areas by 2015. This will push demand for power generation, transportation and sanitation. It is expected that emerging markets infrastructure spending during the next decade will be over $20,000 billion. Merrill Lynch estimates infrastructure spending for selected emerging markets for the next three years to be as shown below.
Trade Relations Shifts
The current market threats are critical for the global economy, however the vigorous growth dynamics of developed economies trading partners have become increasingly driven by domestic demand, more reliant on trade with others, and have become less dependent on Western demands. Will this provide much needed sustainable global growth and provide a lift to the global economy?
The answer to this just might be "Yes"
Although no one denies the importance of the US in the global trade context, the trend has clearly been in favour of emerging markets. Emerging countries are trading more with each other and less with the US as demand in emerging economies booms. Intra-emerging markets exports have risen significantly since 2000, while exports to the US have decreased. For instance how Europe and Japan's GDP outpaced domestic demand as trade came to the rescue over the last few years. The rescue did not come from traditional Old World trading partners, but from the New - Asia, the Middle East, Central and Eastern Europe and Latin America. In New-Asian economies, real growth in domestic final demand has ranged from 4% to just over 10% over the past years. In the Middle East, growth rates have been even faster with heavy infrastructure investment and increased trade in the region. Latin American economies have benefited from structural reform and investment inflows. Mexico's exports are up 22% export growth to other trading partners. Growth in real Japanese exports to the US suffered a downturn but exports to Asia and Europe are up by 15% or more. EU exports to the US were essentially flat while exports to China, ASEAN economies, and the Middle East all rose by up to 16%. Exports from the ASEAN economies to the US declined over 10%, while their exports to non-US destinations rose by over 10%.
China's exports to the US have had drastically slowed from 27% at the end of 2006 to just 9.5%. Continued strong exports to EU and non-Japan Asia have been powerful offsets, and the EU has recently eclipsed the US as China's largest trading partner. Most recent trade shift shows that Chinese trade with the EU soar to $306 billion through July of 2010, compared with $243 billion of trade with the U.S. The more importantly China has also become far more dependent on Europe for importing the technology and infrastructure.
The EU exports to China are soaring at an annual rate of 49 per cent. Chinese large infrastructure investments sucks European infrastructure and machinery goods. European companies have managed well against the Chinese competition by shifting into higher-end machinery and consumer goods. European Companies unlike US companies competed on more than just price by specialising such as in luxury products, high-tech nano products, chemicals materials and construction equipments.
China is not perceived as a threat to The EU, instead presenting growth opportunity with current trade relations indicating that the possibility of it becoming the best and most valued trade partner of The EU.
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