“The growth in most emerging markets (EM) has failed to materially outperform advanced economies since 2013,” according to the Institute of International Finance (IIF).
The IIF said in its latest report that growth slowed sharply across emerging markets, a phenomenon called “secular stagnation” in EM.
“If we look in year over year terms through third quarter (Q3), growth was below the developed market average in Brazil, Uruguay, Turkey, South Africa, Ecuador, Mexico, Saudi Arabia, and Argentina,” according to the IIF.
It stated that there were two distinct groups of countries slowing down EM growth, countries with “crisis” EMs and others with genuine “secular stagnation” cases.
The IIF explained that the first group of countries includes Turkey and Argentina, where the balance of payment (BoP)’s “sudden stop” in 2018 caused domestic demand and thus import volumes to fall sharply.
A BoP crisis, also called a currency crisis, occurs when a nation is unable to pay for essential imports or service its external debt repayments.
Meanwhile, the second group of countries includes Mexico, and South Africa where growth has come to a grinding halt, with import volumes stagnating, with little distinction in terms of export volumes.
According to the IIF, there is little doubt that the BoP “sudden stops” in Turkey and Argentina carry the risk of weighing on medium-term growth outlook. This is because the main casualty of curtailed capital inflows is investment.
“What is more surprising is that a material dis-investment cycle is also underway in Mexico, where it grew acute in 2019 and in South Africa, where it has persisted for longer,” according to the IIF.
The report assured the fact that weak investment is entrenched beyond the immediate list of “crisis” countries, meaning tepid growth may continue medium term, a risk to the ability of EMs to attract foreign capital.
In terms of Egypt, it is enjoying relatively strong GDP growth, estimated at 5.5% for 2019 and projected to be 5.8% in 2020, according to the United Nations’ World Economic Situation and Prospects (WESP) report for 2020.