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News from Members Growth Forecast for Rapid-Growth Markets to Be Close to 5% This Year

Growth Forecast for Rapid-Growth Markets to Be Close to 5% This Year

by EY February 4, 2014

Website www.ey.com

As a whole, rapid-growth markets are set to recover over the course of this year with 4.7% growth expected for 2014 and over 5% in 2015, according to EY’s latest Rapid-growth markets forecast (RGMF). However, the risk of capital flight and a sharp slowdown has increased. According to the forecast renewed capital flight could lead to rapid-growth market (RGM) growth falling closer to 3% by 2015, with global repercussions.

While growth is expected to remain steady, over the course of the next two years, more divergences are expected in terms of growth among the RGMs. Those in the Americas are struggling to regain momentum, while steady growth in China boosts Asia’s RGMs. With industrial production surprisingly strong in Poland and the Czech Republic, emerging Europe is gaining strength, looking to the West, particularly as Germany leads the Eurozone out of recession.

Across the rapid-growth markets there will be nearly 200 million middle-class households by 2022 up from 94 million in 2012. With the growing middle class buying a wider range of consumer products and services RGMs will increasingly look to their own markets to drive demand. Over the medium-term, RGMs still hold many winning cards.

As the number of middle class households increases, demand for health and education services is likely to expand significantly, also adding to the skills of the workforce. Spending on services such as communications, culture and recreation will grow at almost twice the pace of spending on food.

According to the forecast, there are some dramatic trends in the spending power across some of the major RGMs. In China, the number of households earning over USD 35,000 in real terms will triple to almost 80 million by 2022. China will have more households with this earning power in 2022 than Japan.

The transformation is most dramatic in China, but there will be shifts across all the RGMs. By 2022, there will be more than 15 million households in Brazil and Russia earning over USD 35,000, while Mexico, Turkey and India will each have in excess of 10 million such households.

In Nigeria, the number of households earning more than USD 10,000 will nearly double from 6 million in 2012 to just over 11 million in 2022.
But what these households want may be very different from the consumer demands seen in previous periods of rapid economic development. For example, in China the pace of economic change and concerns over food safety and air quality has prompted a move toward defining a more sustainable consumption path. Businesses will need to tailor the products they offer to shifting local demands.
Penetration of consumer durable goods is still relatively low in many rapid-growth economies. However, once household incomes approach USD 10,000, demand for these goods picks up. The forecast shows that over the next 10 years spending on discretionary items will grow at a faster pace than spending on essentials.

To really capture the gains from this rising middle class and balance the pressures on scarce resources, many RGMs will need to invest in green technologies and public transport, and improve the business and regulatory environment.

While there is weaker outlook for financial and business services, with growth of approximately 4% this year and 5% for manufacturing and utilities, the growth for construction and distribution is expected to be more robust at 6% next year. This is in keeping with the trends for more urbanization and greater demand for retail and other consumer services.

It is to say that the growth forecast for rapid-growth markets means good news for Romania’s economy, where exports remain the main growth engine and local producers can focus on these emerging markets, where middle-class has an increased consumption potential.


About EY Romania
EY is one of the world's leading professional services firms with approximately 175,000 employees in 728 offices across 150 countries, and revenues of approximately $25.8 billion in 2013. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, EY has been a leader on the professional services market since its set up in 1992. Our over 450 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. From 1 July 2013, Ernst & Young becomes EY, the logo has been modified in response to this change and the company's new tagline becomes "Building a better working world". The new visual identity reflects the new strategy of EY, Vision 2020. For more information, please visit www.ey.com.

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