China’s growth is set to slow further

In emerging markets the premium of GDP growth relative to the developed countries should narrow further in 2016. This is primarily due to China, which accounts for 38% of emerging market GDP, where corporate debt has risen rapidly since the financial crisis in 2008 - from 100% to 160% of GDP. Debt is much higher than in most other developed or emerging countries and is rising at a very fast pace. 

Calculations by the International Monetary Fund show that debt levels have particularly risen in the case of state-owned companies, mainly in the construction and real estate sector and in mining and utilities, where overcapacity is high and sales prices are falling. 3 The companies operating in these sectors are under growing pressure, which is largely why comparatively low growth is expected for China in 2016 even based on the officially reported GDP figures (6.3%; consensus: 6.5%). On the other hand, do not expect an economic crash because the government is likely to prevail upon state-owned banks to keep highly indebted companies afloat with loans. However, so-called "zombie companies" are also being bailed out, so that they are using up resources that would otherwise have been at the disposal of healthy companies. Amid this "zombification" the Chinese economy is set to expand at a comparatively low rate for several years and not recover rapidly. 

The third group of emerging markets, the commodity-importing countries (excluding China), has profited from falling commodity prices in recent years and has more or less maintained its growth advantage over the developed countries. If commodity prices do not fall further in 2016 commodity-importing emerging markets will lose this tailwind. They are also likely to suffer from the fact that higher interest rates in the US mean that a decade of cheap money is coming to an end.