The FINANCIAL — While the world needs to get used to a slower pace of growth across rapid-growth markets (RGMs) relative to the past decade, a gradual recovery will see growth above 4.5% next year, according to EY’s latest Rapid-Growth Markets Forecast (RGMF).
RGMs have recovered somewhat from the financial turmoil in the second half of 2013 and early 2014, and a fast-growing population, strong investment rates and the rapid adoption of technologies, will continue to grow rapidly over the medium term.
Political challenges exist in some economies; in particular, the on-going conflict in Ukraine is weighing on growth prospects in emerging Europe. Furthermore, instability in Iraq has brought geopolitical risks to the fore and put pressure on oil prices. On the other hand, in economies such as India and Indonesia, new political leaders with strong credentials in governance have recently come to power and must now usher change for accelerating growth, according to EY.
“While near-term growth in several emerging economies hinges on the political will to implement second generation of reforms; in the medium term, fast-growing populations and increasing productivity are expected to lift growth, with cities especially in Africa and Asia, expected to be the epicenter of this growth,” said Rajiv Memani, EY’s Chair of the Global Emerging Markets Committee.
Urbanization and new technologies increase growth potential
The economic output of China’s 150 largest cities will triple from US$8 trillion today to US$25 trillion by 2030, according to the report. China’s urban development plan, highlighted in March by the Chinese Government, puts the urban consumer at the heart of its development, with ambitious targets to improve rail infrastructure, reduce emissions and ensure its cities are fit for the next generation. A faster adoption of green technologies in China has the potential to lift its growth by 0.7% per year on average from 2025 to 2030.
The growing number of lower-middle income households with some disposable income is set to exceed 30 million by 2030 in Africa and South Asia – with incomes above US$5,000 but below US$10,000 in Africa and India. This growth will help to create markets of scale for mobile phone airtime cards and other consumer goods and services, according to EY.
Exponential growth of cities
It is estimated that by 2030, China, Indonesia, Nigeria and Ghana will have more than two-thirds of the population living in cities, with the population in Lagos increasing by a phenomenal 13 million. By this time, 40% of the 50 largest cities in the world (based on GDP by consistent prices) will be in China. Outside of China, Jakarta, Istanbul and Sao Paulo will all rank among the world’s top 20 cities in terms of economic output.
In Latin America, it is estimated that between 2013 and 2030 Mexico City’s GDP at consistent prices will grow by more than 60% – faster than many European and Japanese cities. The green economy reforms the government is expected to sanction soon in Mexico will have a direct impact on this. RGMF expects these reforms to underpin medium-term growth of 4% a year. It is also estimated that Curitiba, Brazil’s sixth largest city, will be one of the fastest growing cities in Brazil over the next 10 years, helped by urban planning reforms which promote greater sustainability, according to EY.
There will also be tremendous shifts within sectors in RGM cities. Manufacturing will expand in cities with more space to grow, whereas financial services will accelerate in cities such as Beijing, Mumbai and Lagos. Industrial output in more space-constrained cities such as Hong Kong, Shanghai, Seoul, Bangkok and Sao Paulo, with relatively more expensive land and labor costs, will grow much more slowly than in cities like Jakarta.
Mexico, Indonesia, China among others are grasping the opportunity to push forward ambitious reforms, including more sustainable technology and shifting their economies away from heavy manufacturing, according to EY.
Increasing demand for health and education services
Varying demographic trends in cities across the RGMs bring challenges and opportunities. For countries such as Russia, Poland, South Korea and China, it is estimated that there will be fewer than five workers supporting each elderly person by 2030. In contrast, it is estimated that India, Indonesia, Egypt and South Africa will still have almost 10 workers for each elderly person.
For all the RGMs, this presents a challenge for the provision of urban public services. Mumbai’s working age population is forecast to expand by a third by 2030, while Tokyo’s will shrink by 7%.
Aging populations will add to pressures on health services in Russian, Polish and South Korean cities. In addition, rising pollutions and congestion is a serious concern in many Asian cities, according to EY.
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