January 05, 2018 09:56AM / Fitch
estimates of supply-side potential GDP growth over the next five years
highlight the importance of demographic factors and investment rates and place
India at the top of the list among the ten largest emerging markets (EMs)
covered in Fitch Ratings' Global Economic Outlook (GEO) forecasts.
projected potential growth is 6.7% per annum (p.a.). China and Indonesia
jointly rank second-highest, both with projected potential growth of 5.5% p.a.
The estimate for China represents a significant slowdown from recent historical
average growth and reflects both a deteriorating demographic outlook and a
slowdown in the rate of capital accumulation as the investment rate has
declined. Broader measures of productivity growth in China have also slowed
since the late 2000's.
potential growth rate is also projected to be rapid at 4.8% p.a. but this
hinges crucially on continued high investment rates, which could be vulnerable
to a sustained slowdown in capital inflows.
growth in Mexico, Poland and Korea is projected to be lower, in the 2.5% to 3%
p.a. range, while South Africa, Brazil and Russia are expected to see
supply-side growth potential below 2% p.a. over the next five years.
dynamics are a key supply-side growth driver. For countries such as Mexico and
Brazil, and to a less extent South Africa, population growth has been the main
or the sole engine of GDP growth historically," said Brian Coulton, Chief
Economist at Fitch.
in particular, but also Indonesia, Mexico, Turkey and Brazil are set to see
continued robust growth in the working-age population in the next five years,
bolstering GDP growth potential. In contrast, in Russia, Poland, China and
Korea headwinds from deteriorating demographics will sharpen and weigh on
rising labour force participation rates give some grounds for encouragement as
they can be a powerful offset to decelerating working-age population growth.
For instance, the participation rate has risen steeply in Russia, Korea and
Poland over the last 10 years or so.
accumulation and investment also have a crucial role in boosting GDP growth.
has been the standout country with the highest investment-to-GDP ratio and
fastest growth in the capital stock per worker, allowing it to record the
strongest improvements in labour productivity and GDP growth over the last
three decades," added Maxime Darmet-Cucchiarini, Associate Director at
Fitch's Economics team. "However the extremely rapid rise in the
investment rate in China after 2008 was associated with a decline in total
factor productivity growth," added Darmet-Cucchiarini.
and, to a lesser extent, Turkey have also seen an impressive rate of capital
accumulation per worker, but in the latter's case this has been funded
externally, with associated downside risks. In contrast, in Brazil, Mexico and
South Africa, the growth in capital per worker has historically been much more
muted. This has weighed on the growth rate of living standards.
factor productivity (TFP) growth - which captures improvements in the
efficiency of the production process - has been subdued in the large EM's in
recent years, slowing across virtually all the countries covered in the report.
This reinforces the importance of accelerating structural reforms to enhance
convergence with advanced economy productivity levels.
along with Indonesia more recently, have seen the best TFP growth historically
and both have made good progress since 2009 in enhancing governance, on the
basis of the World Bank's ease of doing business and rule of law
measures. By contrast, Turkey, Brazil, Russia, South Africa and Mexico
have seen lacklustre TFP growth. India's TFP performance has also been
surprisingly weak given its low level of GDP per capita, while Korea has been
the mirror image with strong TFP growth over the last 20 years despite already
high income levels.
report, "Investment & Demographics Key to EM Growth Potential,"
covers the following countries: China, India, Brazil, Russia, Korea, Indonesia,
Mexico, Poland, Turkey and South Africa. It is available by clicking the above
link, or at www.fitchratings.com
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