The FT captures an important macroeconomic theme that will dominate the next ten years – and ensure commodities and the Aussie dollar keep on falling:
Growth in emerging markets is slowing to its lowest ebb since the aftermath of the financial crisis due to a combination of China’s fading dynamism, a sputtering performance in eastern Europe and Latin America’s slowdown.
Evidence that emerging economies are entering a new era of slower growth will fuel concerns for the global outlook as western countries continue to struggle, the oil price lurches towards a four-year low and eurozone stalwart Germany suffers from declining growth.
Data from 19 large emerging economies collated by research firm Capital Economics show that industrial output in August and consumer spending in the second quarter fell to their lowest levels since 2009. Export growth in August also plunged.
These trends are contributing to a sense that slower growth is becoming a permanent fixture among the world’s most dynamic group of economies. “This is the new normal,” said Neil Shearing, chief emerging markets economist at Capital Economics. “For the rest of the decade this is it. This is as good as it gets.”
…George Magnus, senior adviser to UBS, said: “It is now clear that the exceptional acceleration in emerging market growth between 2006 and 2012 is over,” he said, noting that the IMF has revised downward its forecasts for EM growth on six occasions since late 2011.
One could pick any number of charts to illustrate the point, the HSBC emerging markets index will do:
Simply put, this is a result of China’s structural adjustment. First, it’s own slowing weighs on all of the EM indices. Second, EMs are very commodity and export growth centric so the knock-on effects for growth are obvious.
The new winners in the EM sphere will be those nations that can take market share from China in low cost manufacturing as it pushes itself up the value chain. The losers will be the commodity producers that don’t shift.
The new winners in developed economies will be the manufacturing powerhouses that will enjoy lower and lower commodity input costs to their production.
The big developed economy losers will be those highly leveraged to building commodities, that is, Australia.
