Archive for September, 2010

World Bank issued a report  on September 28, encrypted in a book called ‘ The day after Tomorrow – A handbook on the future of economic policy in the developing world. The report tracks the progress of the developing countries and shows how they are becoming a new engine of global growth and a pulling force for advanced economies

„    The report used IMF forecasts for global gross domestic products, which are made using purchasing power parity (PPP) adjusted exchange rates, to predict emerging nations’ growth rates

„    According to the book, almost half of global growth is currently coming from developing countries which as a group, is projected to surpass the economic size of their developed peers in 2015

„    This finding of the World Bank hinges on the fact that middle-class populations from southeast Asia to Latin America are expanding  while public and private investment are growing by leaps and bounds

„    The co-editor of the book, Otaviano Canuto, who is also a World Bank vice president for Poverty Reduction and Economic Management (PREM), said that developing countries are the new locomotives of growth which will move global growth forward while high-income countries will remain stagnant

„    The publication states that, growth in developing countries is estimated to reach 6.1 percent in 2010, 5.9 percent in 2011, and 6.1 percent in 2012, while corresponding figures for high-income countries are 2.3 percent, 2.4 percent, and 2.6 percent

„    The upward trajectory in the growth-rate is found to be supported by factors like faster technological learning, larger middle- classes, more South-South commercial integration, high commodity prices

„    The progress will also be instigated by the emerging economies ability to find autonomous sources of growth as they have more room for leverage in the balance sheets of their public and private sector

„    In their view, these changes in trade patterns mean managing exchange rates may not be an effective instrument for expanding markets

„    Among other findings were certain developing-country trends identified, like, the recovery of remittances, an increase in South-South trade, rising investment by sovereign wealth funds, more conservative debt management, and progress by many governments in gaining public trust

„    East Asia, Latin America, South Asia and, Africa, are the few ones, who have been identified as the countries having potential to turn into “newly developed”

„    The study also notes that developing countries should take advantage of their relatively healthier fiscal positions to foster inclusive growth

„    This in turn means better targeting of social programs, more emphasis on giving people the same opportunities, and business environments that facilitate the creation of formal jobs

„    The report highlights the fact that the Sub-Saharan Africa has good prospects for faster growth as long as there is a sustained commitment to sensible policies

„    To achieve these policies certain issues need to be addressed like the development of infrastructure, job creation, governance and shrinking aid

„    East Asia and the Pacific is leading the world out of the crisis, but still needs to make progress on economic integration and climate change

„    China will require some rebalancing through the expansion of domestic consumption and the service sector

„    Countries like Indonesia, Malaysia, the Philippines and Thailand which fall into the middle-income bracket need to move up into knowledge- and innovation-based markets

„    Eastern Europe and Central Asia was the hardest hit region by the global crisis and in order to move forward, the region needs to improve its competitiveness and put its social service provision on a fiscally sustainable path

„    Growth in Latin America almost came to a standstill after the crisis but, there was no economic or social meltdown due to strong macroeconomic management and smarter social policy and barring further external shocks, the region is now well-positioned to enter a path of fast and sustained development

„    The key for growth in the Middle east and North Africa, lies in the region’s enormous potential to tap in the new generation of private entrepreneurs which will help boost the business angle

„    The challenge for South Asia lies in to make recovery stronger, inclusive and sustainable as it was the region of the world that better withstood the crisis and was the first to return to the growth path

„    The priority for the region should be to reduce fiscal deficits and tame public debt accumulation in order to create fiscal space for social programs and critical infrastructure

Analysis:

The World bank simply reconfirms the findings of the Bloomberg poll which concluded that global investors belive that the emerging economies are going to outpace the first-world countries in few years. This report by the World Bank we believe will further strengthen the confidence of the global investors for the developing economy and could lead to a further increase of the fund flows into the developing markets.

With a strong domestic demand in the developing nations and expansion of the middle class population alongwith a surge in their expenditure pattern, the developing nations are most likely to climb on the progress graph leaving behind the superpowers of the world. In Indian markets we belive that the sectos like consumer durables, media and FMCG which are the corner stone of demand would strongly benefit from this and offers good investment oppurtunities.

Author:Rahul Sonthalia, Research Head, Kredent