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Emerging markets are enjoying robust, domestically-driven growth in 2017 and are less vulnerable to external volatility, providing potential opportunities for expanded global supply chains.
Emerging markets are enjoying robust, domestically-driven growth in 2017 and are less vulnerable to external volatility, providing potential opportunities for expanded global supply chains.

Global Economy Picking Up

While the global economic outlook is more robust than years past, political risk remains a downside risk to stability

Global Economy Picking Up

The global economy is continuing to strengthen, notes Atradius Worldwide, a consultancy specializing in trade credit insurance, surety and debt collection.
In its latest Economic Update, analysts say worldwide growth is expected to increase 3% in 2017 and 2018. Gross domestic product growth is underpinned by a strong US economy, falling unemployment and improving consumer and business confidence across advanced markets, SCMR.com reported.
The main challenges to the global outlook–low inflation, negative bond yields, austerity and low commodity prices–are slowly phasing out. The outlook for emerging markets is brighter than 2016 as well, as Brazil and Russia emerge from recession and access to finance remains favorable. While the global economic outlook is more robust than years past, political risk remains a downside risk to stability.
As SCMR noted last month, Atradius said that the relatively “benign” outlook for emerging market economies in 2017 would continue, however. “Steady growth and consistent development of the key measures is predicted for the balance of the year,” said David Huey, the consultancy’s president, and regional director.
In an interview with SCMR, he said the lack of any significant movement in the main indices on a month to month basis is a reflection of the steady progress of the advanced markets year-to-date.

Political Uncertainty
“While there remain some possible headwinds caused by political uncertainty, oil prices, labor figures and growth projections have all shown little volatility in 2017,” he said. “Similarly, the insolvency figures have been steady or declining, with Australia a notable exception, but that is on an aggregated basis. A more granular analysis reveals there are still some expected pain points on an industry basis, retail and metals in particular.”
Not only is global GDP strengthening, but also is global trade growth. After a lackluster 1.3% expansion in 2016, trade growth (12-month rolling average, y-o-y) has picked up to 2.4% as of April 2017. Despite policy uncertainty, most high-frequency indicators point to sustained growth: the global manufacturing PMI has been above the 50 neutral mark for 17 consecutive months while new export orders also showed 12 months of improvements and are at the highest level in six years.
Atradius forecasts full-year global trade growth to reach 3.2% in 2017, compared to 1.3% in 2016. However, policy uncertainty, mainly related to potential protectionism, remains a concern for the positive outlook.

Emerging Markets
Many economists note that some emerging markets are enjoying robust, domestically-driven growth in 2017 and are less vulnerable to external volatility, providing potential opportunities for expanded global supply chains.
However, a cautionary note has been sounded by Global Insight IHS Markit chief economist Nariman Behravesh. “As commodity prices have plateaued and slid a little, the recent euphoria about emerging markets has also faded,” he says. “Given that world growth is gradually edging up, growth in the emerging world can be expected to strengthen moderately.”
Behravesh also observes that in India, accelerated “remonetization” has eased the cash crunch in recent months, and spending appears to be picking up. Meanwhile, the Brazilian economy has stabilized and prospects look a little more upbeat. Similarly, the Russian economy is expected to start growing again this year, albeit at a weak pace.
In the meantime, Chinese policymakers have instituted a set of potentially contradictory policies aiming to support growth while reducing the high levels of leverage in the Chinese economy, note IHS Markit analysts.
According to IHS, China’s government is accomplishing the first goal with mild stimulus, which helped boost first-quarter growth to 6.9% year-on-year. Chinese authorities are trying to accomplish the second goal via tighter financial supervision and regulation, which has rattled China’s financial markets. IHS has raised the 2017 and 2018 real GDP growth rates by 0.1%.
“However, we also believe that China’s economy will decelerate in the next few years,” says Behravesh. “The good news for all emerging markets is that growth dynamics are the best since 2014.”
Atradius Worldwide observes that the relatively “benign” outlook for emerging market economies in 2017 is threatened now particularly from the effects of developments in the United States. The potential threat is formed by President Donald Trump’s more protectionist stance on trade, which could weigh on growth in countries that send a large share of their exports to the US—especially in Latin America.

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