Emerging markets’ economic growth likely to rebound as drag from commodity exporters fades

Economic growth in emerging markets is likely to rebound from anticipated 4 percent this year to 4.7 percent in 2017 as the drag from commodity exporters wanes over time, noted Morgan Stanley in a research note.

Emerging markets, excluding China, have had to adjust to an appreciating US dollar and rise in US real rates, decelerating Chinese economic growth and its effect on commodity prices and trade. The adjustment phase has been in process since 2013. The major adjustment was to raise real interest rates significantly and tighten fiscal expenditure to restore macro stability and ease misallocation.

Macro-stability threats in emerging markets excluding China have eased after the profound adjustment. The following strength in aggregate demand caused by the tightening of policies resulted in rebounding current account balances and disinflationary pressures, said Morgan Stanley. Brazil and Russia economies are expected to start posting modest and positive growth rates on a sustained basis from the fourth quarter of this year after being in recession for an extended period of time.

Meanwhile, India is expected to continue posting stable economic growth and is likely to see widening out of the recovery as consumption growth recovers. According to Morgan Stanley, China’s economic growth path is expected to continue with the downward cycle as the impact of past stimulus wanes and structural obstacles drag domestic demand.