February 27, 2018 - The economic recovery in emerging economies is expected to continue strengthening in 2018, growing 4.7% and offering U.S. businesses plenty of opportunity for smart expansion. This predicted recovery is a continuation of what we saw in 2017: 4.4% growth bolstered by strong global trade, rising commodity prices, benign external financing conditions and supportive domestic policies in major markets.
Like any market, risks remain. Specifically, monetary policy tightening in advanced markets, including the U.S., and a slowdown of the Chinese economy threaten stability in emerging markets. The emerging markets designated as most promising in 2018 earn this moniker because of their immunity to these global risks and others.
According to research from Atradius, a global trade credit insurer, the most promising markets of 2018 are Colombia, Costa Rica, the Czech Republic, India, Indonesia, Morocco, Panama, Senegal and Vietnam.
These countries are poised well to support growth in 2018, thanks to the presence of the following three factors:
- Strong domestic growth - Domestic growth reduces the downside risk of global volatility, particularly GDP growth fueled by private consumption and fixed investment.
- Supportive policy - Macroeconomic policy stemming from stable political and institutional conditions encourages growth.
- Favorable demographics - Growing markets typically have a young and active workforce and an expanding middle class – this boosts consumption and increases demand for investments and imports.
- Industry Opportunities in Emerging Markets
Opportunities in each country vary by industry. Below is a guide to what specific sectors are thriving in these promising emerging markets:
Agriculture and food: In Vietnam and Indonesia, the agriculture and food sectors are expected to grow significantly, aided by large populations and growing middle classes. Due to high demand for imports, growth in Indonesia is predicted to reach as high as 8%.
Automotive: The automotive industries are gearing up for a hot year in the Czech Republic, Morocco and Vietnam. The Czech auto sector accounts for more than 7% of GDP and 20% of exports; strong growth will be aided by robust sales, stable payment terms and margins and low insolvencies.
Morocco’s automotive industry also looks promising, while in Vietnam, a lack of suppliers with a strong domestic presence translates to a reliance on imports for automobile production. Finally, the removal of tariffs on vehicle imports from ASEAN member states combined with the positive economic outlook equals growing passenger vehicle sales in 2018.
Chemicals and plastics: The chemicals and plastics sectors look promising in the Czech Republic, Indonesia and Vietnam. Demand is increasing for the Czech chemicals industry as GDP and demand in the auto sector blossom. In Indonesia, the chemicals and plastic sector supports local demand for chemicals; plans to improve infrastructure will likely increase investment in new manufacturing plants. Finally, Vietnam’s chemical imports, specifically raw material inputs and active ingredients, are forecast to experience roughly 10% compound annual growth over the next decade.
Infrastructure: Opportunities in the infrastructure sector are increasing in India, Costa Rica, Panama and Senegal, thanks to population growth, urbanization and supportive government policy. In both India and Senegal, demand is high for railway, road and power, while in Costa Rica, growth is buoyed by foreign investment and increased tourism. In Panama, the government is financing large infrastructure projects, and the outlook is further enhanced by the country’s low-risk project development environment.
Machines and engineering: Indonesia’s machinery sector is predicted to grow 5% to 7% in 2018; specifically, government infrastructure projects and electricity development will lead to increased import demand by the construction sector. In Vietnam, growing infrastructure investment will likely drive a high rate of machinery and equipment imports.
Pharmaceuticals: Opportunities abound in Latin America, particularly Costa Rica, Colombia and Panama. In Costa Rica, a business-friendly environment attracts multinational investment; the country’s pharmaceutical market is in fact the third largest in Central America. In Colombia, demand for medicines has increased due to state investment in healthcare services. Likewise, Panama’s pharmaceutical market is expected to grow as an expansion of the healthcare infrastructure, as well as the rising prevalence of chronic diseases, sustained economic growth and the positive business impacts of the Panama Canal’s expansion.
Retail, consumer durables and electronics: Strong growth is expected in this sector in Vietnam, Senegal, Indonesia and India. In Vietnam, where private consumption is expected to grow nearly 7 percent in 2018, this outlook is supported by robust economic growth and low employment. Private consumption likewise is strong in Senegal. In Indonesia, an increasingly affluent middle class drives demand in the retail and consumer electronics sector; the e-commerce industry looks particularly promising – it recorded around 30% growth in 2017. Finally, retail in India is predicted to pick up in 2018 as the government eases norms on single and multi-brand retail establishments.
Of course, no market, no matter how promising the outlook, is risk-free. It’s as important as ever to consider economies with strong, domestically driven economic growth and with the capacity to deal with external shocks. Businesses seeking to expand their global footprint in any sector should be aware of the political, legal and regulatory environments. A thorough understanding of the local market is key – trade credit insurance can provide both the necessary knowledge and protection against any downside risks.
Source: American Journal of Transportation