On May 16th the World Bank released a report containing interesting information which puzzled many investors around the world. According to the World Bank’s experts, it is not the USA and the EU but the so called “developing economies” that will be playing the key role in the global markets and economy.
According to the report, by 2015 the 6 major developing economies – Brazil, China, India, Indonesia, South Korea and Russia – will make over 50% of the global economic growth (their share in the markets and the global GDP will exceed 50%). Obviously, such a major change in the global distribution of powers will cause other major changes:
1. First of all, in the global monetary policy. The US Dollar will lose its dominance: it will have to share its power with the common Euro currency and the Chinese Yuan. The multi-currency scenario is also probable.
2. The role of the developing economies. The developing economies will be promoting the economic growth of the less-developed countries by means of international trading and financial activities.
In other words, the world is going to face major re-division within the next 10 years. Of course, the first won’t become the last. However the changes are expected to be fairly considerable.
What will the global change of power look like?
The experts of note that according to the World Bank’s estimations, the annual growth of the developing economies will reach 4.7%. The growth will continue at least till 2025. Over the period their net share of the global economy will grow from 36% up to 45%.
At the same time the developed economies will lag behind. Their annual economic growth will be around 2.3%. However, despite that the USA, Japan and some EU countries will remain the “locomotives” of the global economy.
Investment attractiveness. The fast pace at which the developing countries will be growing will definitely help to attract considerable investments from the developed economies. Thereby, the redistribution process will lead to the genuine multi-polar world.
The growth of the currency reserves. In 2000 the emerging economies owed just 37% of the entire global currency reserves ($9 trillion dollars). Now their share is 60%. And experts say it is not the limit.
What are the strong sides of the developing economies?
During the financial crisis most countries with developed economies were hit with instability and crisis. The emerging economies came out of the crisis less affected even though they had been considered more vulnerable.
1. Their financial flexibility was based on the following factors:
- Considerable currency reserves
- Budget and balance-of-payments surplus
- Banks with high capitalization
All that still can protect the developing countries from economic shocks
2. Financial Stability. Numerous experts say that the stable economic growth and financial stability seen in the developing countries have long-term perspectives.
3. Trade. The trading volume between those countries keeps growing, which obviously makes them less dependent on the markets of the developed countries.
4. Middle class. The developing countries see their middle class gradually expanding, which can guarantee the continuation of the chosen economic course.
5. Political influence. The strategy of further economic growth is included in the political programs introduced by the governments of these countries.
What are weak spots of the developing economies?
All the developing counties share the same risks:
· Structural changes. All the mentioned countries will need to implement considerable and often painful structural changes as soon as possible. These days China, India, Russia and Indonesia are constantly facing serious institutionary challenges and problems in the managing sector. So, the perspectives of the developing economies will depend on how successful they are in solving these problems.
· Reforms. Numerous sectors (first of all, the social sector) need reforms.
· Income inequality. The developing countries keep facing the inequality in terms of income and access to basic services. If some of the mentioned countries are hit with social crisis, then the economic perspectives will be reduced to nothing.
· Investments. Considerable finances that are currently flowing into the developing economies can eventually lead to inflation growth, devaluation of assets and destabilization of the local banking systems.
· Brain drain. The pace of economic growth in the developing countries is still hampered by the outflow of experts and technologies. Unfortunately, this trend will last for a long time.
· Access to education. The access to high-quality education leaves much to be desired in Brazil, India and Indonesia. In other countries the things are much better but are still worse than in the developed countries.
USD perspectives:
The experts of the Department of draw our attention to the following facts:
· The US Dollar index is developing the “Moment of Truth” pattern by Elder/MF
· MF pivot (75.75) and sloping channel (76) are significant levels of resistance. If they are broken above and supported by the AO, the index will complete wave B H4
· Breaking above 76.54 (a fill-grown FZR H4) = a change of the mid-term trend.
Market Leader and conduct a survey. To participate in it, please, visit the Academy’s forum for traders and investors and answer the following question:
Do you think the forecasts for the perspectives of the developing economies look too optimistic?
· No, I don’t. The forecasts are objective.
· Yes, I do. A lot of risks are connected with the developing economies. So their future is unstable.
