Recession? Emerging Market Perspectives

The US, Japan, and old Europe plod along worrying about when their number of unemployed will stop growing. I am teaching at the University of Palermo Business School for the month, and the view down here of the economy is somewhat different. Why is this?

Let´s start with the equity and real estate market crashes that resulted in a global asset loss of $50 trillion – http://www.morssglobalfinance.com/the-global-recession-what-stimulus-is-needed-for-recovery/. In the West, a significant portion of the population own stocks. In the rest of the world, equities are only held by a small wealthy minority. That means the asset losses had relatively small impact in the non-Western world.

Let us look at the stock markets today. Table 1 indicates how far down the markets went from their highs (in late 2007 or early 2008) to their lows in October or November of 2008. It also shows how far off their peaks the markets are today.

Table 1. – Global Stock Market Performance

The performance of most Latin American markets is truly remarkable. With the exception of Peru and Venezuela, the losses are in the single digits, with the Colombian market actually recording new highs. The non-Western countries were initially impacted by the global recession via a reduction in export demand and lower commodity prices.

Table 2 presents data on export volume. As can be seen from the Table, Japan, Brazil and China were hit very hard.

Table 2. – Export Volume Growth (%)

Source: World Bank

Consider now the prospects for recovery. This is of course speculation, but the World Bank estimates probably give a reasonable sense of relative prospects. There several notable things about Table 3.

Table 3. – World Bank Projections (%)

Source: World Bank

• The GDPs of high income countries are expected to fall 4.2% this year. That is serious. Japan´s fall of 6.8% is not all that surprising inasmuch as its exports are already down by 46%.
• The growth rates of developing countries are down from 8% but still projected as positive for 2009 and 2010.
• China is truly remarkable. Its ascent in the last two decades depended on growing exports to the West. Its exports are already off by 34% in 2009, and yet its GDP is still projected to grow by 6.5%. How can this be explained? An appropriate stimulus package and a growing middle class taking over for exports as a demand generator.
• Russia and Mexico are projected to have bad years. But on the other hand, look at Peru, India, Egypt, and Sub-Saharan Africa.

In short, there is no question that the financial collapse threw the world into a global recession. Growth rates worldwide are down. But the effects differ by country. Who knows when the developed world will recover? But some countries can see the light at the end of the tunnel.