World Bank Points to Signposts for Global Growth Through 2025 in Emerging Economies

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--A new World Bank report, titled "Global Development Horizons 2011--Multipolarity: The New Global Economy," says that during the past two decades, emerging economies have become a powerful force in international production, trade and finance. Developing countries' share of international trade flows has risen steadily from 30% in 1995 to an estimated 45% in 2010, with much of this increase due to an expansion of trade--not between developed countries and developing countries, but among developing countries.

Emerging economies are projected to grow at an average rate of 4.7% annually between 2011 and 2025. Advanced economies are forecast to grow 2.3% over the same period, but will remain prominent in the global economy, with Europe, Japan, the U.K. and the U.S. all playing core roles in global growth. More than one-third of foreign direct investment in developing countries originates in other developing countries.

By 2025, six major emerging economies--Brazil, China, India, Indonesia, South Korea and Russia--will account for more than half of all global growth, and the international monetary system likely will no longer be dominated by a single currency. Mansoor Dailami, the lead author of the report and manager of emerging trends at the World Bank, said: "Over the next decade or so, China's size and the rapid globalization of its corporation and banks likely will mean a more important role for the renminbi. The most likely currency scenario in 2025 will be a multi-currency market centered around the dollar, the euro and the renminbi."

Emerging and developing countries now hold two-thirds of all official foreign exchange reserves, which the report says is a reversal in the pattern of the previous decade, when advanced economies held two-thirds of all reserves.

Sovereign wealth funds and other pools of capital in developing countries have become key sources of international investment. At the same time, the risk of investing in emerging economies has declined dramatically. The World Bank report says that borrowers such as Brazil, Chile and Turkey now pay lower interest rates on their sovereign debts than several European countries.

There is diversity in the potential emerging economy growth poles, some of which have relied heavily on exports, such as China and Korea, and others that put more weight on domestic consumption, such as Brazil and Mexico. The emergence of a substantial middle class in developing countries, and demographic transitions under way in several major East Asian economies, will see stronger consumption trends prevail, which in turn can create sustained global growth.

To sustain growth and cope with more complex risks, economies that are home to emerging growth poles need to reform their institutions, including economic, financial and social sectors. China, Indonesia, India and Russia all face institutional governance challenges. Human capital and ensuring access to education is a concern in some potential growth poles, particularly Brazil, India and Indonesia.

Mapping the challenges that a multipolar world economy poses for developing countries over the next 20 years, the report's authors use empirically based indices to identify high-growth countries with strong human capital and technological innovation, which also drive economic activity in other countries. Growth spillovers are likely via cross-border trade, finance and migration. These factors will induce technological transfer and increased demand for exports.

At present, short-term forecasting on economic and industrial prospects is a dark art practiced by the brave. The World Bank report looks past survival and renewal trends in the next couple of years to 2025. For Industrial Info clients and readers, it affords a macro perspective for strategic guidelines.

If you want to be in the growth stream, get your company boat in position on the rising tide of developing regions and countries. Also, understand that there is no longer a place for expert visitors. Companies have to live with the aspirations and technical, training and social needs of the countries in which they wish to do business.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.