After several years of stable growth, influxes of overseas investment, and attention from companies going international, most analysts predicted a bright future ahead for emerging markets. Then, last year, the first signs of trouble began to appear, with several markets entering a noticeable slump.
Is there an emerging markets crash on the horizon, or have these fears been overexaggerated?
Emerging Markets – the Cracks Begin to Show
A slowdown in emerging market growth was first flagged up early in 2018, as the US dollar recovered from its own slump period and the US economy and interest rates both began to rise.
Faced with the newly strong dollar, and weak alternatives in Japan and Europe, a number of emerging markets saw their own currencies dropping sharply. The phenomenon was first noticed in Argentina and Turkey, who both saw record low performance for the peso and the lira, respectively. The Turkish lira was the first indicator of trouble, leading to fears that other countries with sizeable deficits and a large stock of dollar-denominated debt would also experience a slowdown.
Another factor highlighted was the increasing turbulence and hostility of the international trade landscape, with protectionism on the rise and the US-China trade war showing no signs of de-escalating. As a result, fewer investments were being made, companies looking to expand internationally scaled back their plans, and fewer people were willing to gamble on the high-risk strategy of an emerging market.
The global news site Quartz has even voiced fears that, if these economies were to crash suddenly, the fallout would affect more established markets, and negatively impact the world’s economic growth.
The Outlook for Emerging Markets May Not be as Bleak as Predicted
Although the declining currencies and slower growth of emerging markets are undeniable facts, some observers have suggested that fears of a crash are being overexaggerated.
Forbes point to the underreported fact that most of the struggling economies have their own, entirely individual factors contributing to economic slowdown. In cases such as Argentina and Brazil, external factors and fiscal problems caused by the countries’ own governments have been linked to poorly performing economies.
As well as this, there is a potential next generation of emerging markets beginning to establish themselves, some of who are not as encumbered by high interest debts, or political mismanagement. In particular, the international market expansion consultancy Galvin International point to Vietnam, Rwanda and Mexico as promising markets with significant growth potential.
Some of these countries are even benefitting from the uncertainty and turbulence affecting the rest of the world – Vietnam has experienced a dramatic spike in rents as China’s toy manufacturing firms move there to avoid US tariffs, for example.
While fears of an emerging market slowdown are not entirely unfounded, predictions of a total crash are also failing to take various factors into account. The global trading landscape has been experiencing a rocky period, and this has been reflected in emerging and established markets, but the future for both holds both challenges and new opportunities for growth.