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| Source: Morgan Stanley Research |
1. Productive growth, a stage of moderate to high productivity-driven growth;
2. Misallocation, in which there is moderate growth driven by bad macro policies;
3. Adjustment;
4. Restoring Macro Stability, and finally
5. Gradual Recovery.
A large number of emerging markets have moved into the “restoring macro stability” recently — which means that growth is still weak, but the economy is stabilizing. Russia, Brazil, Turkey, and Thailand are in this category Global GDP growth might get a boost next year, as some economies approach the end of the “emerging markets business cycle” and begin a gradual recovery.
These economies are not necessarily strong yet, but do show signs of increasing stable growth — except for Turkey, whose economy could be negatively impacted after the failed coup attempt. Thailand, for example, still has weak domestic demand and exports, but its economy is growing, partly due to robust growth in tourism, and Russian oil has managed to prosper even with today’s low prices. Brazil is still dealing with an economic crisis, which is exacerbated by its political one — but financial markets reacted favorably to news of the possibility of the president’s impeachment, and a Brazilian economist said that “the expected changes in the government and its economic policies could represent the beginning of a gradual return of investor confidence in Brazil,” and that the economy should return to growth by 2017.
If these countries move into the recovery stage in the next year, it would drive an acceleration in emerging market growth for the first time in four years. Morgan Stanley expects the GDP growth of emerging markets, excluding China, to accelerate from 2.7% to 3.8% in 2017. Those markets together make up 37% of global GDP. Countries that are already in this “recovery” phase include Mexico, which has the 11th-high GDP in the world but is still considered a developing country, and India, which has been called the “biggest turnaround story” in emerging markets because of its slow, gradual growth over the past few years. Meanwhile, China is still in the “misallocation” stage — the one with moderate growth but bad macroeconomic policies. Also in this category is Korea, whose low growth has been largely caused by declining trade with China.