Around the world, a palpably cautious mood has settled over central banks, economists, and corporate leaders. In many countries, the rise in interest rates – and thus borrowing costs – is slowing, sparking optimism that the worst of the global inflationary surge has passed. Inflation-prone economies such as the U.S. are growing increasingly confident that a “soft landing” is possible.
Still, global volatility is causing experts concern. Geopolitical turmoil – especially the wars in Ukraine and between Israel and Hamas – threatens economic stability. Although inflation rates in many countries are slowly moving in the right direction, sticky, persistent inflation continues. As companies’ low-interest loans expire, future borrowing will occur at higher rates – changing investment and consumption patterns.
What do these trends and the resulting cautious mindset mean for countries’ economic growth in 2024 and beyond? Which countries and emerging markets (EMs) are likely to grow fastest, and which may not grow at all? Oxford Economics explores these considerations in several new research reports.
Cautious optimism marks 2024 Emerging Markets forecasts
General growth projections for emerging markets are positive, with Oxford Economics forecasting a 2024 aggregate growth forecast of 3.6%. However, details matter here.
Inflation will continue to play an outsized role. Aggregate EM average inflation for 2024 is forecast at 7.6%, but results will differ by country. Inflation is declining in parts of Asia and Latin America, but renewed food and energy price pressures may slow that decline. In Central Europe, falling demand is increasing the pace of disinflation.
As a result of these factors, it’s expected that central banks in 12 of 15 major EMs will cut rates as their next move. Yet a re-emergence of the global headwinds that prevailed from late-summer until October could slow this trajectory. Oxford Economics projects that the Association of Southeast Asian Nations will pause on rate cuts until Q2 2024 at the earliest and that Mexico’s central bank will delay its first rate cut until Q1 2024.
Slow recovery is coming to Latin America
Latin America’s six largest economies – Argentina, Brazil, Chile, Colombia, Mexico, and Peru – are expected to grow slightly in 2024. Oxford Economics projects a 0.6% expansion of the countries’ combined GDP in 2024.
Each of these countries is already in recession or close to tipping into one, driven by tighter fiscal and monetary policies combined with lower commodity and export prices. Yet with the dissipation of idiosyncratic shocks and the embrace of less restrictive domestic policies, these countries are expected to begin a slow recovery in early and mid-2024.
In emerging markets, long-term growth is most likely in Asia
Looking beyond 2024, the emerging markets best-positioned for growth are China, the Philippines, the Czech Republic, and Malaysia, according to a new Oxford Economics report. Countries with the weakest long-term growth outlook include Argentina, South Africa, Turkey, and Brazil.
To project likely growth rates, Oxford Economics assesses 33 factors that point to long-term growth indicators. These indicators are calculated as a weighted average of labor-related, capital-related, and change-related measures. Oxford Economics uses these factors to rate 20 emerging market economies.
Countries with a higher growth potential tend to have a relatively strong score for technical indicators, which include measures of productivity growth, economic structure, and governance. Nations with weak scores performed poorly on economic structure and capital-related indicators, which include indictors of investment, returns on investment, and research and development.
In emerging markets, countries in Asia scored most favourably for long-term growth. Latin American countries were rated as relatively weak on long-term growth prospects.
Comprehensive research sheds light on growth potential
When evaluating economies’ growth prospects, it’s important to examine unconventional issues that can lead to surprising outcomes. In one recent research report, for example, Oxford Economics correlates countries’ future economic growth with past Covid suffering.
Countries whose financial vulnerabilities were exacerbated by the pandemic crisis – such as Egypt, Pakistan, Nigeria, and South Africa – are projected to endure the biggest long-term losses. Nations with inflexible labour markets, such as Peru, India, Nigeria, China, South Africa, and Colombia, are likely to experience a prolonged response to Covid disruption. Overall, emerging markets experienced more scarring than advanced economies.
However, conventional wisdom may not be the best way to predict the future. Economists have long been in favour of productivity-enhancing tools to boost countries’ growth. But not all technologies live up to their initial promise.
Some analysts predict that artificial intelligence (AI) will catalyse an uplift in global productivity and economic growth. But a recent Oxford Economics report suggests that while AI may be transformative for some sectors, such as customer service, it’s unlikely to drive significant world growth. According to the report, the absence of widespread AI adoption and large-scale innovation will result in only narrow economic gains for a long time.
To understand which countries are likely to grow in 2024 and beyond, rely on the Oxford Economics’ analysis model, which provides a rigorous and consistent structure for forecasting and understanding the impact of economic shocks.
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