Thought for the day

Emerging Markets Contributed Almost Two-Thirds of Global Growth Over Last Decade


 
Last updated: 3 May 2024
 
Countries defined as Emerging Markets have massively outperformed all other categories, yet poor Governance and other characteristics keep portfolio weightings limited.

The contribution of Emerging Markets to global growth has been phenomenal over recent decades. Yet most global portfolios continue to give rather lowly weighting to such countries. In the case of countries such as Russia, investors are clearly right to be hesitant to invest and those that are invested in Russia now regret the decision. But in overall Emerging Market terms the growth disparity has been so large between developed and developing countries that portfolios may be seriously underweighting the great changes taking place in the world economy.

Contribution of Emerging Markets to Global Growth
Period: 2013-2023
Emerging Markets Contributed Almost Two-Thirds of Global Growth Over Last Decade
* GDP in Purchasing Power Parity terms with added estimates for the size of the informal economy and adjustments for out-of-date GDP base year data.


In comparison with the 65% of output growth created within Emerging Markets, Developed Markets produced 19% contribution, Frontier Markets just 9%, and the Rest of the World 7%.

Whilst it must be remembered that it's far easier to produce impressive numbers from a low base (which has been the case for most Emerging Markets over the past thirty years), the enormous growth of China, India, South Korea (and others) in recent years means that this view is of less and less relevance today. Many economists have suggested over the past quarter century that (for example) China's extraordinary rise cannot continue at the same pace forever, which is necessarily true, sooner or later. But until Covid arrived, the slowdown in output growth in China had been modest, with growth that could only be described as rapid continuing virtually non-stop.

A further argument has also been directed at many Emerging Market countries, to the effect that the quality of their economic data is suspect, and therefore the growth rates quoted may be artificially high. The World Economics Data Quality Ratings do suggest that in some developing countries care should be taken in the interpretation of GDP and Population data, but the general quality of data has been improving, and some (for example, China again), has Population and GDP data now classed as A and B grade respectively.
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