Reflections on 2017, Continued 2018 Emerging Markets Driven Global Growth

2018 is here and the global economy is stronger and more robust than many expected. In October, the IMF revised up their global growth projections to +3.7% for 2018 (from +3.6% in 2017).

These strong global growth numbers have been driven by global emerging market and developing economies where real GDP is expected to grow at +4.6% versus advanced economies expected growth at +2.2%.

It can be expected, barring any unforeseen global conflict escalation or currency debacles, that global emerging and developing countries will continue to see GDP growth outperform advanced economy growth given the following 4 trends:

  • Wide spread global growth should provide support for stable global growth. According to the IMF, all countries (with data) have experienced positive real GDP growth in 2017 with the exception of 12 countries including Venezuela and South Sudan at -6.0% and -3.4% respectively. The IMF expects all countries except 6 to experience positive real GDP growth in 2018.
  • Fast growth emerging and developing countries, including China, represented ~40% of the world’s GDP in 2017 (IMF data) and are expected to grow to ~42% in 2020.  As these countries continue to invest in infrastructure and create legal systems to attract global investment, it is evident that global growth will continue to be driven by emerging and developing country development. Global growth trends are also reflected in the world’s largest economies. For instance, China represented +15% of global GDP in 2017 and is expected to represent +16% in 2020 while the U.S. represented +24% of global GDP in 2017 and is expected to represent +23% in 2020.
  • Emerging and developing countries have increasing and stable significance in the world’s economy which will mean that the variability of their performance will become linked to individual country characteristics rather than broad risk on/risk off trades. For instance in 2007, emerging market and developing economies represented only ~28% of world GDP (versus ~40% currently) and the U.S. represented ~25% of world GDP (while China represented ~6%). Following the 2008 global economic crisis, in 2009, emerging and developing countries represented ~31% of world GDP while the U.S. represented ~24% (China represented ~8%).
  • Between 2015 and 2030 three-quarters of global consumption will be driven by individuals spending more – much of this growth is historically significant and in global urban centers, i.e., +91% of global consumption growth will be generated by people living in cities (see this McKinsey Report).
    • ­ Until the turn of the century, population growth generated half of all global consumption.
    • ­ Retiring and elderly in developed economies will generate +51% of urban consumption and will account for +60% of total urban consumption growth in Western Europe and Northeast Asia.
    • ­ China’s working age population will expand by +20% by 2030. By 2030, China’s working age population will account for +12% of every dollar spent in cities worldwide.
    • ­ Global demographic (rising middle class) and wealth distribution trends will drive tailored products as spending power is globally distributed and income inequality forces complex pricing and brand management strategies.

Many companies and portfolios are domestically oriented and under-exposed to these large global growth trends.  As technology and increasing global equalization continue to develop, most countries and portfolios should have a global strategy.  Should you want to discuss your growth strategies, please feel free to contact us.

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