Deloitte has argued “all is not lost” in the world’s largest emerging markets despite the recent slowdowns in countries like Brazil and Russia.
Dr Ira Kalish, chief economist at Deloitte, said the global economy is “picking up” and consumer sentiment is returning.
Speaking at this year’s World Retail Congress yesterday (7 October), Kalish pointed Brazil and China – markets he suggested were facing particular issues with growth.
Brazil, Kalish said, had experienced “very rapid” economic growth but its short-term prospects were less strong.
“Retail sales grew rapidly but production of goods did not. Now with rising interest rates, and a tightening of fiscal policy, the growth outlook is not particularly good. For now, the boom in Brazil appears to be over,” Kalish said.
Turning to China, the economist said the country’s economy had taken on “a huge amount of debt … fuelled by a huge amount of lending”. He also highlighted income disparity and the political environment as other issues.
“This huge growth of shadow banking will ultimately lead to a financial crisis. The real question for China is, can they sustain the growth they are currently experiencing?”
The solution, he suggested, lies with Beijing. “Banks will be bailed out by the Government but there will be a slowdown in economic growth. The best way for China to have a soft landing will be to have reforms. Reform is required but we need to see what the Government announces.”
But while Kalish said growth in the emerging markets was slowing, he offered an optimistic outlook.
“All is not lost. Emerging markets are still very important. Credit to emerging markets, they are growing faster than the developed markets. They will still be faster growing markets but just not as fast.”
Turning away from the emerging markets, Kalish pointed to Europe where he said “things are not quite where we want them to be”.
“If retailers want to grow they have to go somewhere other than Europe,” he told attendees. “Things are not quite where we want them to be. Overall, it is not a very pretty picture.”
“What is wrong with Europe? Banks are still in pretty bad shape, leading to weak credit markets. Add to that the fact that we have had tight fiscal policies, high unemployment and a continued decline of the real wage. It is a perfect storm of events leading to a weak trading environment for retailers.”
Nonetheless, Kalish suggested looser monetary policy and a weak euro had provided a bosst for Europe. The fall in the value of the euro had “improved the competitiveness of exports, which has resulted in negotiations taking place, which should take the pressure off some countries”. The potential for a banking union will also prove beneficial for Europe, he said.
He added: “The good news is Europe is on the mend.”
Countries he said offered optimistic growth opportunities, included the US, which he said was “in pretty good shape” and “amongst the few countries in the world where GDP is higher than before the recession”.
Mexico, which he said was “for a long time forgotten”, is now back. “Reforms will boost energy production and it has very good demographics. The wage gap between China and Mexico is narrowing so this will boost manufacturing. Growth is promising.”
Finally, Kalish pointed to the Philippines, which he said is seen as “the comeback kid”.
“It is becoming a good place for manufacturing, as opposed to China, so the outlook is good.”
For a closer look at the emerging markets, read just-food’s management briefings on Russia and Brazil.