Emerging Markets: Performance in the Post-Crisis Period

By Parul Jain
NABE Board Member
MacroFin Analytics  & Baruch College

Against a backdrop of growing optimism about the strength and resilience of emerging market economies, the October 12 session on “Emerging Markets Performance in the Post-Crisis Period” provided an important reality check on regional economic performance and prospects.  Panelists addressed the divergent performance and prospects, from Pan-Asian economies to Latin American countries. An assessment of the impact of robust emerging market growth on the United States was also taken up.

The session commenced with a brief introduction by Parul Jain, with a commentary on the UNCTADs World Investment Prospects Survey for 2009-2011. This survey has been assessing the prospects for foreign direct investment (FDI) by multinational companies since 1995, and NABE partnered with the UNCTAD in the 2009 survey. The responses (see www.unctad.org) revealed that although global FDI flows suffered in 2009, a full rebound is expected by 2011, as the drive for internationalization remains in place. The most attractive economy for FDI location was China, followed by the United States, India, Brazil and Russia. Mexico, Indonesia, Vietnam and Thailand ranked in the top fifteen.

The prospects for Latin American economies were addressed by Rogelio Ramírez de la O, head of Ecanal S.A., a private consulting firm in Mexico City. His cautionary point at the outset was that lumping Latin American prospects into one basket was not appropriate, and that individual country imbalances and prospects required due attention. Thus, while there are some general regional features—such as heavy export orientation in terms of primary commodities and manufactured goods, along with a readiness to deploy counter-cyclical fiscal policies—the situation differs for major Latin American economies. For example, while Brazil, Chile, and Peru are well positioned to post a strong growth performance in 2010, the harder hit economies of Mexico and Venezuela could post weaker results.  Rogelio noted that Mexico was a particularly complex case, with high export dependency on the United States and worker remittances to the tune of $25 billion per year. With the exception of Chile, inflation remains high; Venezuela’s inflation rate is projected at 34 percent for 2010, followed by Argentina at 8.5 percent, and Mexico at 6.8 percent. Rogelio blamed this on price distortions and the administration, with over-zealous use of counter-cyclical policies.

Yong Yang, senior economist at Ford Motor Company, provided a fairly robust outlook for Asian economies. While China and India are the growth leaders, Yong focused on the prospects for the Association of Southeast Asian Nations (ASEAN) covering the economies of Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, as ASEAN is a critical part of the manufacturing supply chain fabric. For the ASEAN-6 economies, gross domestic product (GDP) growth is expected to average 5.0 percent in 2010, after rising at a meager 0.8 percent in 2009. Although severe imbalances do not exist, Yong cautioned that heavy fiscal and monetary stimulus that was deployed raises cautionary flags on the inflation front, particularly with respect to Indonesia, Vietnam, and Philippines, where inflation could exceed 6.0 percent in 2010. On balance however, the vast growth potential for immature markets should keep investor interest elevated in the region.

David Altig, senior vice president and director of research at the Federal Reserve Bank of Atlanta, shifted the focus back on the U.S. outlook in the context of emerging market developments. In essence, tepid growth expectations in industrialized countries put considerable burden on emerging market prospects to sustain the world economy. Thus, export revival hinges considerably on emerging markets providing the growth engine. Commenting on financial stability, he noted that mere regulatory reform would be insufficient, since severe global imbalances need to be addressed.

The question-and-answer session generated considerable debate and dialog. Commenting on the idea that a decoupling between the United States and emerging markets may occur, panelists noted that the sheer size of the United States would preclude such independence in the near term. However, there were mixed feelings about the U.S. dollar. Additionally, it was noted that emerging European economies present a strong profile. All told, there was marked optimism—and hope (with “fingers crossed”)—that emerging market performance in the post-crisis period would help elevate world economic growth.

For the speakers’ presentations, go to the annual meeting session page.

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