Market outlook

Slowing growth in emerging markets is temporary

BrasiliaFinnish investment service company FIM estimates that the slowing growth of the emerging economies is caused mainly by the business cycles. Furthermore, the slowing growth has already been priced to the shares. 

The slowing GNP growth of the developing market has provoked much discussion. International Monetary Fund IMF has lowered the gnp growth forecast of the developing countries into 4,5 per cent of the 5 earlier per cent.

However, Hertta Alava, the director of the funds of the developing market at FIM, points out that the slowing of the growth has not come to the investors as a surprise. The slowing growth has already been priced to the equity markets in emerging economies.

It is more important to pay observations, instead of the slowing growth, to the reason behind it. “It is more important to think how large part of the slowing growth is cyclical and how large part of the structural”, Alava tells in the investor letter of FIM.

It is mostly cyclical, in other words temporary slow growth. Brazil’s, Russia’s, South Africa’s and India’s growth forecasts to next year will be higher than this year according to the estimate of IMF. Only China’s growth slows down more than during this year.

However,  the slowing growth is not only caused by the business cycles. There are also structural problems. Alava mentions the clearly decreasing working population as the most important structural problem.

The political culture which slows down also necessary reforms is still a nuisance. However, there is positive development in this field in China, in India and in Russia, Alava says.

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