Emerging Markets to Resume Growth While the West Withers

The world’s rapidly developing economies are poised to live up to their name in the aftermath of the Great Recession and to reduce the wealth gap between themselves and their rivals in the West, according to new analysis by The Boston Consulting Group (BCG), released early this month.

 

From 2010 to 2015, if economies follow the historical pattern of postrecession growth charted by the International Monetary Fund, the long-term annual growth rates in the United States, Europe, and Japan could fall below 2%.

 

By contrast, it is likely that growth rates in China, India, and Brazil will return to levels closer to those seen before the crisis: for China, 8% to 9%; for India, 6% to 7%; and for Brazil, 3% to 4%. Of the BRIC countries, only Russia is at risk of seeing growth rates as low as 2% to 3%, far below precrisis levels.

 

The study, highlighting the fast emergence of a two-speed world, was produced in conjunction with the forthcoming book "Accelerating Out of the Great Recession: Winning in a Slow-Growth Economy" (McGraw-Hill, February 2010) by BCG senior partners David Rhodes and Daniel Stelter.

 

“The implication of our projections for the global economy is this: Business leaders need to prepare for a two-speed world,” says Stelter. “Many developing countries appear to have dodged the economic bullet, at least for now. This should force companies in the West to realize—if they haven’t already done so—that they are going to be in a dogfight for growth over the next five to ten years.”

 

Adds Rhodes, “The postcrisis era will be marked by the growth ‘haves’ and ‘have-nots.’ Companies need to understand this and to proactively develop business models that enable them to make the most of growth where it exists.”

 

According to the International Monetary Fund, economies tend to have a significant “output gap”—the deviation of actual output from its extrapolated precrisis trend growth—in the seven years after a banking crisis. On average, actual output is 10% below its precrisis trend (an output gap of –10%).

 

Building on the IMF’s findings, BCG has created a model to explore the effects of the Great Recession on likely growth patterns. The model shows that, in some countries, the output gap is likely to be significantly worse than average.

 

In Russia, the BCG model projects an output gap in 2015 of –29.7%; in the United Kingdom, –16.7%; in the United States, –12.8%; and in Germany, –11.7%. By contrast, Brazil is projected to be ahead of its precrisis growth trend, with an output gap of 1.3%. For India, the output gap is expected to be –2.5%; and for China, –4.3%.
 

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