Looking ahead, the outlook for emerging markets during the second half remains solid. However, whether growth can accelerate much beyond the first half is probably a long shot.
Rapidly growing emerging markets continue to offer a larger contribution to global growth than mature economies. Yet Europe, the United States, and other mature economies are picking up steam, indicating some rebalancing of the sources of growth from emerging to mature economies. Stronger demand from mature markets will eventually help emerging markets, particularly those which are export-oriented. Global growth in 2017 appears to be robust, with the combined effects of a cyclical pick up in industrial activity and global trade. If any emerging economy hits a speed bump, it will likely be due to its own domestic economic conditions.
China’s Economy: A Glass Half Empty Or Half Full?
China saw solid growth in the first half of 2017, easing some of the downward risks for slower 2017 growth. China’s official economic growth rate for the second quarter came in at 6.9 percent, the same as in Q1. While contribution of net exports to GDP growth increased by a full percentage point to 0.3 %-point compared to -0.7 %-point last year, investment and consumption contributions to GDP growth declined. The export recovery also helped manufacturing sector growth, while growth slowed in construction, real estate, and financial services.
To the extent that external demand remains supportive, demand from Chinese consumers could still catch up. But expect the long and gradual transition to slower growth in the economy to continue and bring China’s economy to relatively more moderate growth rates around four percent.
Brazil: Wither The Economy?
Brazil’s economy is finally climbing out of a two-year recession, but the uncertain political and economic atmosphere puts downward risks on our modestly positive outlook. Those risks have not completely dissipated. Concerns over delays in fiscal reforms, an increase in fuel taxes, and a cut in public spending add to already existing concerns about high unemployment and consumer debt holding back economic growth.
Leading indicators suggest a positive outlook for Brazil. However, Brazil recently increased fuel taxes, with the aim of increasing revenues by $3.3 billion. This, along with an expected reduction in public spending by nearly $1.9 billion, might reduce consumption. Nevertheless, the current cyclical momentum in Brazil is towards a cyclical recovery and modest growth unless the political turmoil generates a renewed lack of confidence.
Oil Prices And The GCC
Political uncertainty is also mounting in the Gulf economies, as tensions between Qatar and several other countries in the region have not subsided. As of now, the impact is likely to be local, and less important for the global economy unless it spills over to global oil and natural gas markets through rising prices. There are no signs of that yet.
On the contrary, crude oil prices dropped by five percent in May and almost seven percent in June. Yet the possibility of a negative impact spreading to other economies within the region is high. The initiative by OPEC and non-OPEC countries to bolster the oil prices by cutting production has resulted in a decline in growth in large economies. Saudi Arabia even had a contraction of half a percentage point in economic growth in the first quarter of 2017.
Abdul Erumban, Brussels-based Senior Economist with The Conference Board, co-authored this op-ed with Ataman Ozyildirim, Director of Business Cycle and Growth Research at The Conference Board, based in New York City.
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