As we approach Q2 of 2024, we can perhaps let out a very labored sigh of relief, as there are glimmers of hope on the horizon that the markets may finally be steadying themselves.
At the end of 2023, despite many markets and economies posting slight gains compared with the trouncing that the markets took in 2022, things hardly looked amazing. There were few indications of a bull run in the near future, and things looked particularly bleak for emerging markets.
Since the end of 2023 however, sentiment has improved and investors, business experts, and market analysts are now cautiously optimistic that developing economies may be heading in the right direction, poised to post impressive growth stats at the conclusion of the year.
As is the way with investing, and indeed, with the markets and economies in general however, it almost certainly won’t be smooth sailing and there will likely be more than a few flies in the ointment along the way.
So, what can we expect from emerging markets in 2024, and what challenges could developing economies face?
What are Emerging Market Economies?
Before we can look at the challenges emerging markets and developing economies may face for the remainder of the year, we’re first going to look at precisely what emerging market economies are.
Put simply, an emerging market economy is the economy of a developing nation which has become more financially successful and more engaged with other global markets as it has grown and expanded, this is in contrast to economies from a developed market.
A developed market will enjoy characteristics such as a dependable regulatory system, strong and stable economic growth, be easily accessed by overseas investors, have a high per capita income, liquid equity, and debt markets, and have a financially lucrative economy. From an investment standpoint, emerging market economies can be very attractive to investors as they provide the potential for impressive returns due to rapid rates of growth.
An emerging market economy, however, is usually in the process of transitioning into a more developed one. Whereas the economy of a nation may have once upon a time been unreliable, and generally unimpressive, it could be in the process of growing larger and more successful, with a higher standard of living. It is essentially in the process of improving and gradually becoming more financially successful.
Emerging Markets to Benefit from Resilient Global GDP
Since the beginning of Q1 2024, growth outlooks for many of the world’s more developed economies, including the UK and the U.S, has improved noticeably.
In the U.S for example, despite the labor market seeing more than a few wobbles, it is still holding firm and is demonstrating resiliency. As a result, GDP growth for 2024 has now been revised to 2.5%, as opposed to just 1.5% in the previous quarter.
This revised GDP growth figures will likely result in the U.S economy providing emerging markets with a much-needed boost – higher than previously anticipated.
Manufacturing Set to Play a Big Part of EM Growth in America
As emerging markets look likely to enjoy impressive gains in 2024, much of their gains is likely to be driven by manufacturing.
Trends and figures show that manufacturing may have indeed secured a floor in the U.S and that it could start contributing toward growth. This in turn will further boost manufacturing activity in emerging markets with strong links to the U.S economy.
EMs Feeling the Sting of High Interest Rates
Despite inflation gradually declining and looking likely to be stabilized, interest rates at this point in time still remain unchanged, at the highest they’ve been in years.
As a result of the Federal Reserve, Bank of England, and the European Central Bank all hiking interest rates to tackle inflation, global economies are feeling the pinch. Emerging market economies are looking particularly vulnerable.
Emerging market economic growth rates will likely be very vulnerable for the remainder of the year. High interest rates mean financing new investments and the cost of servicing new debts will both increase.
This, combined with the threat of recession in the U.S, and Eurozone recovery likely to remain fragile, means that EMs are very much at the mercy of inflation. Should inflation tick up, or fail to drop to the targets set, rate cuts will likely be postponed. As time goes by, Emerging Market economies will really begin to feel the sting of high interest rates.
The Chinese Economy May Also Play a Part
Recently, there has been a lot of talk about the state of the Chinese economy, driven largely by the issues facing property developer Evergrande Group, which filed for bankruptcy in 2023.
Despite the Chinese economy looking much healthier than in recent years, their property sector is anything but. Add to this, the fact that investor confidence is waning, and there is a lot of uncertainty about which direction their economy may be heading.
The property sector issues affecting the Chinese economy will also likely influence the potential for growth within developing economies.
Political Uncertainty a Factor
Finally, political uncertainty will also prove challenging for emerging markets and developing economies across the globe.
With big elections taking place in the UK, Europe, and the U.S for example, policy predictability will likely remain lower than normal. The markets rarely react well to uncertainty. They like stability, predictability, and certainty.
Until these elections have taken place, regardless of the outcome, emerging market economies will likely see plenty of ups and downs over the next 9 months or so.
Forecast Outlook
When all is said and done however, despite Emerging Markets facing challenges, 2024 GDP growth forecasts still look healthy.
Revised figures for GDP growth in 2024 now come in at 3.9% (up from 3.8% as previously predicted). This figure does not include China.
Now, 2023 saw 4% so this is a slight drop, but despite this, investors are not concerned and are reasonably happy with these figures, particularly as 2025 is predicted to see Emerging Markets record GDP growth figures of 4.4% for that year.
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