Tuesday, January 21, 2014

Emerging economies to do better in 2014 than 2013

Emerging economies will grow faster in 2014 - closer to 5% year on year - for several reasons. Brisker recovery in advanced economies will boost imports from emerging markets. 

The Fed's exit from QE will be slow, keeping interest rates low. Policy reforms in China will attenuate the risk of a hard landing. And, with many emerging markets still urbanizing and industrializing, their rising middle classes will consume more goods and services.

Still, some emerging markets - namely, India, Indonesia, Brazil, Turkey, South Africa, Hungary, Ukraine, Argentina, and Venezuela - will remain fragile in 2014, owing to large external and fiscal deficits, slowing growth, below-target inflation, and election-related political tensions. Some of these countries - for example, Indonesia - have recently undertaken more policy adjustment and will be subject to lower risks, though their growth and asset markets remain vulnerable to policy and political uncertainties and potential external shocks.