For emerging markets (EMs), the period since the turn of the millennium will go down in the history books as one of significant outperformance. But can the drivers of the rapid growth over the past couple of decades be repeated?

Our View

We don’t think so. We expect EM GDP growth to ease from an average of 5.5% in the 2000s and 2010s to around 3.5% in 2020-2040. Growth will still be faster than that in the developed world. But incomes will converge more slowly than previously.

Poorer EM regions (Africa and Asia) are likely to experience faster growth than richer EM regions (Emerging Europe and Latin America). At a country level, India will lead the pack, but China’s trend rate of growth will slow to just 2%.

Real GDP (% y/y, Average)
Nominal GDP at Market Exchange Rates (US$trn)

This slowdown need not in itself be bad for the rest of the world. That said, given China’s high debt level, there is a risk that its adjustment to slower growth is not a smooth one.

There are geopolitical implications too; if we are right in expecting China’s growth rate to slow, assumptions that China will overtake the US to become the world’s biggest economy will be proved wrong.

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